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What has survived from the original Pension Schemes Bill?

 You may have read various headlines about the Pensions Bill which was first announced in the Queen’s Speech in October. Its progress was subsequently halted with the calling of the General Election but it has now been confirmed by the Queen and is on its way to becoming law. 

Given all the to-ing and fro-ing, you could be forgiven for being unclear as to what it actually includes. It has, in fact, remained largely unchanged and has met with widespread cross-party support.  

The main initiatives include:

  • The introduction of the framework for pensions dashboards
  • Legislation to establish collective defined contribution (CDC) schemes
  • Greater powers for The Pensions Regulator 

The government said the purpose of the bill was to “support pension saving in the 21st century, putting the protection of people’s pensions at its heart.”

Pensions dashboards 

The long-awaited pensions dashboards are designed to allow savers to view all their lifetime savings in one place through a digital interface. Data will be retrieved directly from pension providers and updated in real time. The Pensions Bill has introduced new rules that will provide a framework so that providers will be compelled to provide accurate information. State pension data should also be visible.       

Experts warn, however, that primary legislation will take most of 2020 to reach the statute book and it could be several years before much of the older data from company and private pensions is accessible. Research has shown that 65.8% of respondents would like to use a dashboard to see how much their pension is worth and what type of income that would translate to in retirement. 54% of those surveyed, though, said they would be unlikely to use the system if it only contained partial information.

It’s clear that dashboards have the potential to revolutionise retirement planning but the industry wants to ensure early users are not put off by incomplete versions.The Bill is really only the beginning.          

Collective Defined Contribution schemes 

The Bill also announced its commitment to the creation of a ‘framework for the establishment, operation and regulation of Collective Defined Contribution (CDC) schemes.’ Currently, employers can offer either a Defined Benefit (DB) scheme or a Defined Contribution (DC) scheme but both have their disadvantages. DB schemes can present significant risks to the employer while DC schemes may give a less predictable income for scheme members. As a result, the Government has decided to offer this new type of scheme, the CDC, also known as a Collective Money Purchase scheme. 

As the name suggests, both the employer and the employee would contribute to a collective fund from which the retirement funds would be drawn. The scheme does not produce individual pension pots and the funding risk would be shared collectively by the individual investors.       

Unlike DB schemes, CDC schemes do not guarantee a certain amount in retirement. Instead, they have a target amount they will pay out, based on a long-term mixed risk investment plan. 

Greater powers for The Pensions Regulator  

The other key part of the proposed Bill is that The Pensions Regulator (TPR) will be given stronger powers to obtain the correct information about a pension scheme and its sponsoring employer in a timely manner. This will ensure it can gain redress for members when something goes wrong. Any company boss found to have committed ‘wilful or grossly reckless behaviour’ in relation to a pension scheme will be guilty of a criminal offence, which will carry a prison sentence of up to seven years.

Sources
https://www.pensionsage.com/pa/Pension-Schemes-Bill-reintroduced-in-Queens-Speech.php

https://www.pensionsage.com/pa/Over-half-of-savers-unlikely-to-use-incomplete-dashboard.php

https://www.ftadviser.com/pensions/2020/01/08/govt-s-revolutionary-pensions-bill-re-enters-parliament/

https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-8674

Can I afford to retire?

Retirement has often been described as “the longest holiday of your life.” But attractive as that sounds, can you afford to pay for the holiday?

Research by one leading insurance company shows that 69% of people over the age of 50 are concerned about their income in retirement.

Many people underestimate how much income they will need when they retire. If you’ve been used to having two cars, going on foreign holidays and eating out then it is unlikely that you’ll want to give those up simply because you’ve stopped work. In fact, many people find that their need for income actually increases when they retire. After all, if you’re behind a desk all day, the only money you’ll spend will probably be on a sandwich at lunchtime. Contrast this with how much you spend on a day off.

As worries about income in retirement increase, so do people opting to keep working after their normal retirement date.

Many people who have their own business argue that “my business is my pension.” Again, that works well in theory – but it assumes that you can sell the business for the price you want at exactly the time you want. With technology changing ever more quickly and more and more businesses losing market share to the internet, relying on your business to fund your retirement can be a high risk strategy.

More than any other aspect of financial planning, your retirement demands careful consideration. From checking on your likely state pension to tracking down any previous pensions you might have to making sure you’re contributing sufficient to your current pension – retirement planning needs to be done thoroughly and reviewed regularly.

4 steps to keeping track of your pension

A recent study has revealed the worrying statistic that over a fifth of all people with multiple pensions have lost track of at least one, with some admitting to have forgotten the details of all of them. With around two thirds of UK residents having more than one pension, this amounts to approximately 6.6 million people with no idea how much they’ve put away for their retirement. Double the amount of people admit to not knowing how much their pensions are worth.

It’s an undesirable side effect of the modern working world. Whereas in previous generations someone might stay at a single employer for their entire working life, the typical worker today will hold eleven different jobs throughout their career, which could potentially mean opting into the same number of pensions through as many different providers. The new legal requirement for all employers to offer a pension scheme through auto-enrolment is likely to add further complexities.

As a result, the Pensions Dashboard is set to launch in 2019 in the hope that it will make it easier for savers to keep track of their pensions in one place. Until then, however, there are four relatively simple steps to help you track down information on any pensions you’ve forgotten about:

  1. Find your pension using the DWP Pensions tracing service at www.gov.uk/find-pension-contact-details. Start by entering the name of your former employer to discover the current contact address for them. You’ll then need to write to them providing your name (plus any previous names), your current and previous addresses and your National Insurance number.
  2. In the case of a pension scheme which hasn’t been updated for a while, you’ll be required to fill out an online form to receive contact details. You’ll be required to give your name, email address and any relevant information to help track down your pension details. This could include your National Insurance number and the dates you worked for the company.
  3. You can also receive a forecast of your State pension either online or in paper format by going to www.gov.uk/check-state-pension. After entering a few details to confirm your identity, you’ll be told the date you can access your State pension and how much you’ll receive.
  4. Finally, and most importantly, once you’ve managed to track down all of your pension information, get some advice. Consolidating your pensions might be tempting to make managing your savings easier, but you also want to make sure you don’t lose out on any benefits by doing so. Before you make any decisions regarding your pensions, seek professional independent advice on what to do next.

Sources
http://www.independent.co.uk/money/modern-careers-risk-billions-in-lost-retirement-savings-a7545091.html

Defined Contribution vs Defined Benefit – what’s the difference and what’s the trend?

As defined contribution pension plans overtake defined benefit (in terms of money paid into schemes) for the first time ever, more and more people are taking an interest in how the two differ and the relationship between them. The Office of National Statistics (ONS) has reported that in 2018, employee contributions for defined contribution pension pots reached £4.1bn, compared to the £3.2bn that employees contributed to DB schemes.

With April 2019’s increase to minimum contributions for DC schemes seeing employer contribution hitting 3% and employees contributing 5% towards their pension, the trend of DC contribution increases in relation to DB isn’t set to slow any time soon.

So before DB Pensions become a distant memory, let’s take a look at exactly what they are. A defined benefit pension, which is sometimes referred to as a final salary pension scheme, promises to pay a guaranteed income to the scheme holder, for life, once they reach the age of retirement set by the scheme. Generally, the payout is based on an accrual rate; a fraction of the member’s terminal earnings (or final salary), which is then multiplied by the number of years the employee has been a scheme member.

A DB scheme is different from a DC scheme in that your payout is calculated by the contributions made to it by both yourself and your employer, and is dependent on how those contributions perform as an investment and the decisions you make upon retirement. The fund, made of contributions that the scheme member and their employer make, is usually invested in stocks and shares while the scheme member works. There is a level of risk, as with any investments, but the goal is to see the fund grow.

Upon retirement, the scheme member has a decision to make with how they access their pension. They can take their whole pension as a lump sum, with 25% being free from tax. They can take lump sums from their pension as and when they wish. They can take 25% of their pension tax free, receiving the remainder as regular taxable income for as long as it lasts, or they can take the 25% and convert the rest into an annuity.

One of the reasons for DB schemes becoming more scarce is that higher life expectancies mean employers face higher unpredictability and thus riskier, more expensive pensions. This is a trend that looks likely to continue. If you’re unsure of how to make the most of your pension plan, it’s recommended to consult with a professional.

Sources
https://businessnewswales.com/defined-contribution-pensions-overtake-defined-benefit-for-the-first-time-ever/ https://www.moneyadviceservice.org.uk/en/articles/defined-contribution-pension-schemes https://www.pensionsauthority.ie/en/LifeCycle/Private_pensions/Final_salary_defined_benefit_schemes/
https://www.moneywise.co.uk/pensions/managing-your-pension/your-guide-to-final-salary-pensions

Going Dutch: Could this new type of pension be the answer to the pension problem

Work and Pensions Secretary Amber Rudd has given the go-ahead for Dutch-style pension schemes to be offered to UK employees. These schemes, known as CDC, are a ‘halfway house’ between defined contribution and ‘gold-plated’ defined benefit schemes.

CDC stands for collective defined contribution schemes. They are similar to defined contribution pensions in that employer and employee make a regular contribution to a savings pot. Unlike defined contribution schemes, however, savers pool their money into a collective fund, rather than having their individual accounts. The idea behind this being that risks are shared evenly by all.

What’s more, CDC pensions give their members a ‘target’ income for life. Instead of a guaranteed income, CDC pensions say they’ll pay out a ‘target’ amount, based on a long-term mixed-risk investment strategy. This amount can change – it can fall in the event of circumstances like adverse economic conditions – or rise if the assets are particularly well invested.

Risk is shared by employers making changes to the amount they put in. When markets are down, pension payments can be reduced and contributions may be increased. Also, CDC funds can take a more balanced approach to investment risk rather than moving an individual pot into low-risk bonds as the retirement date approaches, as can happen with ordinary defined contribution pensions.

Critics argue that CDC pensions will be too hard to marry with the high level of control we have after the introduction of pensions freedoms in the UK. You wouldn’t be able to transfer out and buy an enhanced annuity if you had a low life-expectancy, as you would in a defined contribution scheme.

This scheme will be offered to Royal Mail workers first. They have strong support from the Communications Workers Union to go ahead with the scheme for its 140,000 members, though getting the scheme up and running might take a long time.

Sources
https://www.personneltoday.com/hr/cdc-pensions-collective-defined-contribution-pensions-cdc-dutch-style-defined-ambition-pensions/
https://moneyweek.com/498182/cdc-pensions-a-third-way/

Why moving abroad can affect your state pension



Retiring overseas is a dream for many Brits. After all, who wouldn’t be tempted by the better climate and the amazing travel opportunities found abroad. Where you choose to spend your retirement, however, will affect how much state pension you get.

State pensions are frozen if you decide to move abroad to certain countries, such as Australia, New Zealand, Canada or India. Whilst normal state pensions rise according to the triple lock, in these countries your pension would be frozen. The triple lock means that pensions currently rise by the highest of inflation, average earnings or 2.5% Whether or not your state pension is frozen depends on whether the Government has struck individual deals with the country you move to. As it stands, the Government has only made deals with the EU, the US, Switzerland, Norway, Jamaica, Israel and the Philippines. It has been decades since any new deals have been made.

To illustrate what this freeze means, an expat who retired when the basic rate was £67.50 a week in 2000 would still get that, rather than the £125.95 received by those whose pensions have not been frozen. Likewise, if you qualify for the full state pension of £164.35 and already live in or move to one of the ‘frozen’ countries, the amount you receive will not increase while you stay abroad.

This freeze currently reduces the pensions of approximately 550,000 British pensioners.

However, upon returning to the UK, pensioners are eligible to get their state pension uprated back to the full amount by applying directly to the Department for Work and Pensions service centre.

What about Brexit?

As it stands, nothing is certain until we get a final deal (or no deal!). However, it’s likely that state pensions in the EU will not be frozen. An update on Brexit talks published jointly by the EU and UK indicated they had ‘convergence’ of their positions on state pension increases.

If you’re planning on moving to a ‘frozen’ country like Australia, it’s best to consider the implications of a frozen state pension on your finances sooner rather than later. It will be easier to mitigate the effects when you’re younger and still have greater financial ties to the UK.

Sources
https://www.thisismoney.co.uk/money/expat/article-6278449/Will-state-pension-retire-abroad.html

As a parent, could you be missing out on your state pension?

There’s no reason why being a parent, and particularly being a non-earning parent with commitments to their children, should put you at risk of decreasing your state pension entitlement. Currently, however, there are potentially hundreds of thousands of people in this exact position – although thankfully, there are steps to take so that it can be avoided.

Figures supplied to the Treasury by HMRC suggest that there could be around 200,000 households missing out on these pension boosting entitlements. If the child benefits are being claimed by the household’s highest earner, and not the the lower earner or non-earner, these potential national insurance contributions can fall by the wayside. Treasury select committee chairman and MP Nicky Morgan says; “The Treasury committee has long-warned the government of the risk that for families with one earner and one non-earner, if the sole-earner claims child benefit, the non-earner, with childcare commitments forgoes National Insurance credits and potentially, therefore, their entitlement to a full future state pension.”

With 7.9 million UK households currently receiving child benefits, there is potential for a large number of people to be affected. Thanks to data from the Department for Work and Pensions, it’s suspected that around 3% of those (around 200,000) may be in this situation. It’s worth noting that the family resources survey covered 19,000 UK households and as the estimate is sample-based, there is some uncertainty on the exact numbers of those at risk. Nicky Morgan continues, “Now that we have an idea of the scale of this problem, the Government needs to pull its finger out and make sure that people are aware of the issue and know how to put it right.”

Sources
https://www.moneymarketing.co.uk/over-200000-parents-may-be-missing-out-on-their-pension-says-hmrc/

https://www.mirror.co.uk/money/200000-parents-missing-out-state-13895884

From the Adviser-Store

The long-awaited ban on pensions cold-calling has finally come into force

From January 9 2019, the cold-calling of savers about anything to do with their pensions became illegal. The new law doesn’t just cover phone calls. Any unsolicited emails or text messages about your pension will also be illegal.

As it stands, not every cold-call you receive about your pension is a scam, though many scammers use it as a tactic to get their hands on your retirement savings.

When the ban comes into force, you can be sure that any out-of-the-blue call about your retirement savings is definitely a scam.

The introduction of pensions freedoms in 2015 is widely cited as the reason for the alarming increase in pension fraud over the last few years. Scammers have seized upon these rules, which give savers much more flexible access to their retirement savings, to get unsuspecting individuals to transfer their cash.

Key warning signs of pensions scams include offers of free pension reviews and promises of incredibly high rates of return, among others. Citizens Advice report that as many as 10.9 million people were cold-called about their pensions in 2016 alone.

In the wake of this rise in scamming, savers have been turning to financial watchdogs in huge numbers for help. Between August and October last year more than 173,000 people visited the FCA’s ScamSmart website for more information.

Pension fraud victims lost £23 million in the last year alone, up £9.2 million from the year before. The real amount could be even higher as only a minority of victims report being scammed.

From 9th January, when you put the phone down on would-be pension scammers, you can tell them that they have broken the law just by contacting you.

If you suspect you have been victim to a pension scam, you should report the scam or fraud to Action Fraud as soon as you can. They will pass the information to the National Fraud Intelligence Bureau who will analyse the case to find viable lines of enquiry. If they find any, they will send the report to the police for investigation.

Sources
https://www.telegraph.co.uk/pensions-retirement/financial-planning/scourge-pension-cold-calling-finally-banned-january/

are children’s pensions as good as they seem?

Pensions for children? Surely that’s taking planning ahead to a whole new level?

Nonetheless, if you can afford it, putting money aside in to a pension for your children or grandchildren can be a sensible option.

Under the current rules, you can put £2,880 a year into a junior self-invested personal pension (SIPP) or stakeholder pension, on their behalf. Even though the child won’t be a taxpayer, 20% is added to the amount in tax relief, up to £3,600 per annum. If you think about it, that can result in quite a significant amount over the years, taking compound growth into consideration.

The idea of contributing to a pension may tie in well with your sense of responsibility towards the next generation. You may feel sorry for the youngsters of today with their university fees to pay back and a seemingly impossible property ladder to climb.

However, on the downside a children’s pension can be quite frustrating for the recipient. The money is tied up until their mid fifties. This means that although the amount is steadily growing with no temptation to dip into it, it may not be much consolation for a twenty-five year old desperately trying to find the deposit for a house. Instead of making their financial future easier, you may have, in fact, impeded it.

There are other alternatives which will also give you the benefit of compound growth and help you to maximise tax relief, such as using our own ISA allowances and then gifting the money later. These may have more direct impact if the money is to help pay for a wedding, repay a student loan or enable them to buy a house or start a business.

Pension contributions are often referred to as ‘free money’ because of the the tax relief. In addition, 25% of the lump sum when the recipient comes to take their pension is tax free but it is equally important to remember that 75% of any withdrawals will be taxable. Another consideration is that children’s pensions have the lowest rate of tax relief but once in employment, your children may be higher rate taxpayers so would have benefited from higher rate relief.

One thing is for sure and that is that the rules around pensions and withdrawal rates are frequently changing. Given the extended timeframe involved, it’s likely that the regulations around accessing a pension pot will have altered considerably by the time a child of today reaches pension age. Their fund will have had time to grow handsomely, though. As with most things, it all comes down to a question of personal preference for you and your family.

Sources
https://www.ftadviser.com/pensions/2018/05/09/danger-of-children-s-pensions-laid-bare/
https://www.bestinvest.co.uk/news/are-pensions-for-children-bonkers-or-brilliant
https://www.moneywise.co.uk/pensions/managing-your-pension/start-pension-your-child

6 top tips on how not to lose money from your pension each year

Keeping track of your pension can be difficult at the best of times, and if you have multiple pots it can seem nigh on impossible. Fortunately, we have some top tips to help.

First introduced in 2012, auto-enrolment made it compulsory for UK employers to automatically enroll their staff into a pension scheme, unless they opt out.

However, according to financial services firm Hargreave Lansdown, £600 million is being lost from this scheme each year.

This is because every time you change employer, you receive a new pension pot. Each time you start a new pension pot, you are charged between £20 and £80 in administrative fees. With the average worker changing jobs 11 times, over the course of a lifetime that adds up to a substantial sum.

Luckily, there are some simple steps you can take to avoid these extra charges and make sure that you are up to date with all your pension pots:

  1. Avoid having more pension pots than necessary. If you change employers, see if you can transfer your old pension across to the scheme in your new workplace. Sometimes employers will be happy to make contributions to your existing pension pot. If so, you can keep that one going and avoid any extra charges.
  2. Be mindful of where your money is. Never take for granted that the default fund your employer provides is the best one for you. It is important to see if your hard earned pension pot could be growing more elsewhere. There’s a chance you might be able to stake out a pension fund with fewer charges or a better investment return than your employer’s default pot.
  3. Remember to notify pension companies if you move house. If you have multiple pension pots, it is easier than you think to lose track of a pension fund, especially if the company can no longer contact you.
  4. Use the government’s pension pot finding service. Luckily, the government has an online service that allows you to find contact details for your own workplace or personal pension scheme. You can access this here.
  5. Check back through your paperwork. The majority of pension providers send an annual statement that includes the current balance of your pension, plus a projection of how much your pension will be worth when you reach retirement age. There’s a chance you might have held onto these and they may be lurking at the bottom of your filing cabinet. When you find the right document, you can contact the pension provider to update your details.
  6. Get in touch with your old employers. If you think you have lost a pension pot, get in touch with your old employers straight away. They should be able to help you find the details of any lost pension.

Keeping track of your pensions can, at times, feel overwhelming. We hope that our pension top tips help you manage your pensions and maybe even save you some money.

Sources

Brits lose £300 from their pension each year – here’s how to avoid it