Week ending 19 April: Election manifestos: pensions| FSCS to provide 100% protection for annuities| Surge in pension freedom enquiries|
Election manifestos: Pensions
Everything points towards the 2015 General Election being one of the tightest races in decades and a lot of commentary is focussed on the prospect of coalition government. This makes an analysis of the compatibility of policies, including those of smaller parties, more relevant than ever. The key pledges on pension are shown below.
The Conservatives have pledged to scrap inheritance tax on homes worth up to £1m if they gain a victory in next month’s General Election.
The party’s proposal will be funded by raiding pension tax relief for additional rate tax payers who earn above £150,000.
At present, everyone has a personal inheritance tax allowance of £325,000 or a combined allowance of £650,000 for married couples – 40 per cent tax applies to the value of property above this.
The Tories plan to create an extra tax-free band worth £175,000 (£375,000 between spouses), which would apply to main residences and bring the total nil-rate band available on a property to £1m. The change would come into effect in April 2017.
In its manifesto, the party confirmed a number of plans previously hinted at, including the intention to cap pension tax relief at 20 per cent for those earning over £150,000 in order to fund a cut to university tuition fees from £9,000 to £6,000.
The party also pushed for the inclusion of ‘proper guidance’ in its reforms to avoid any further mis-selling for those wanting to drawdown their pension pots after the new pension freedoms came into effect last week.
"We support greater flexibility for those drawing down their pension pots, but there must be proper guidance for people to avoid mis-selling,” the party said in its manifesto.
Labour also repeated a promise to retain the triple lock on state pensions, so that the state pension will increase by inflation, earnings or 2.5 per cent, whichever is the highest.
The Labour Party manifesto pledged to force pension fund investors to disclose how they vote on remuneration, as part of a wider move to “improve the link between executive pay and performance”.
The Liberal Democrats have pledged to establish a review to consider a single rate tax relief which would be ‘more generous’ than the current 20 per cent.
Additionally, the party said if it were to gain power, it would legislate to make the triple lock permanent.
The UK Independence Party has promised to deliver a flexible state pension ‘window’ to allow pensioners to take a slightly lower weekly state pension from the age of 65 and a £60 million budget for Pension Wise for 2015/16.
The party provided no details over how the policy would be funded, stating only that it would become cost-neutral to the state over time.
The manifesto also attacked the 45 minutes of guidance provided by Pension Wise as ‘completely inadequate’ and promised to fund a higher standard of independent guidance for savers.
It pledged to increase the budget for the guidance guarantee in 2015/16 to £60 million, and the 2016/17 budget to £30 million. In March the Financial Conduct Authority confirmed that the estimated cost of the guidance guarantee would be £39.1 million over 2015/16. A pensions advice and seminar programme would also be made available to all pensioners in order to protect their best interests and savings if Ukip came into power.
The party also committed to the criminalisation of cold calling by pension scammers to crack down on unregulated financial firms.
The Green Party has pledged to overhaul the state pension system, halving the tax relief on pension contributions in order to fund a ‘citizen’s pension’.
In its manifesto, the party, said it will replace the state pension system with a ‘citizen’s pension’ that would pay £180 a week for single people and £310 for couples, regardless of their contribution record. Future increases would be at the higher of the price increases of basic goods and services or average earnings.
It said tax relief currently amounts to a £40bn government subsidy for a pension system it believes has “failed”. As a result of this, it said it intends to fund the overhaul by halving the tax relief on contributions, which would raise £20bn.
The party would additionally make further cuts to the annual allowance to ensure “more of the subsidy goes to the lower paid”.
Also, it would restore full state pensions to those expats whose payments have been frozen since they moved abroad
Would resist increase in State pension age beyond age 65. Want retention of ‘triple lock’ for State pension increases. And want single tier State pension of £160 to keep pensioners off means tested benefits.
Would introduce a new single-tier ‘Living Pension’ to help end pensioner poverty. Further pledges include reviewing the unfair extension of the state pension age; introducing flexible pension access for the self-employed and ending the unfair 40% plus pensions relief subsidy for higher-rate tax payers.
FSCS to provide 100% protection for annuities
In Policy Statement 5/15, the PRA sets out proposed amendments to its rulebook which are intended to align the existing insurance compensation rules more closely with the PRA’s statutory objectives and contribute to the future operational effectiveness of the FSCS in providing continuity of cover, payment of benefits falling due and compensation in the event of the failure of an insurance firm.
Among other things, the new rules agreed following consultation include the extension of compensation to all long-term insurance products (including annuities, pensions and life assurance) from 90% to 100% of the outstanding value of the policy, in the event that the insurance provider becomes insolvent.
The new policyholder protection rules and statement of policy are due to take effect on and from 3 July 2015.
Surge in enquiries following introduction of freedom and choice for pensions
Figures from the Association of British Insurers (ABI) show that ABI members handled over 200,000 phone calls from customers in the first week following the introduction of the pension reforms, a 214% increase in average call volumes that would be expected during the period. The figures show that between Tuesday 7 and Friday 10 April:
- ABI members received 229,932 phone calls from customers interested in finding out more about their pension options under the reforms. This was a 214% increase in average call volumes that would be expected during the period, equating to an average of 57,483 calls each day.
- After a peak on Tuesday, call volumes have fallen but were still well above the average.
- Over 10,000 written and email requests were received each day, more than double the average.
Providers’ experiences in the early days have underlined that, for customers wanting to take cash, there are three important points they should consider to help them make an informed decision:
Even if customers think they’ve made up their minds about releasing cash, it’s still important they speak to Pension Wise and their provider to make sure they understand all the implications. People should be sure they will have enough money for their retirement if they cash in their pension now.
Savers turning their entire pension pot into cash could face a sizeable tax bill, reducing the amount of money available to them. Customers who want to release several lump sums should expect to see emergency tax imposed on these payments, which they will then need to reclaim from HMRC. The tax system works by taking tax up front and correcting any over-payments later.
VALUABLE PENSION BENEFITS
Customers with a valuable guarantee in their pension, such as a Guaranteed Annuity Rate (GAR), are required by the government to take financial advice before they can transfer or take cash, if these safeguarded benefits are worth £30,000 or more. This is to ensure they are aware of the value of this option before deciding whether to give it up.
PPF confirms changes to pensions flexibility do not apply to PPF and FAS payments
The Pension Protection Fund (PPF) has confirmed that the changes to pensions flexibility introduced on 6 April 2015 do not apply to the PPF and therefore entitlement to PPF compensation doesn’t change. Members will still receive a regular payment from the PPF rather than a lump sum. This also applies to the Financial Assistance Scheme (FAS) and the assistance paid by FAS.