Employee Benefits | New State Pension Guidance | JLT

24 November 2014

Week ending 23 Nov: Guidance on abolishing contracting-out & new State pension| More UK women save for retirement

New guidance on abolition of contracting-out and the new State pension

From 6 April 2016, when the new State pension is introduced, contracting-out of the additional State Pension will end. The Department for Work and Pensions and HM Revenue & Customs have produced guidance which explains the impact of this change for employers, employees and trustees. There are still 2,500 private sector employers who offer an open contracted-out salary related pension scheme.

The following initiatives on the new State pension have also been launched -

Public information campaign
A new multi-channel advertising campaign entitled ‘Your Pension, Your Future’ began on 18 November – part of an effort to explain the reforms and how people can get the most out of it. The new campaign includes press, radio and online advertisements, as well as a significantly enhanced package of online information at GOV.UK to help people find out more.

The launch coincides with the publication of new research carried out on behalf of DWP which confirms the lack of understanding many people have about the British State Pension system.

State Pension statement
The campaign launch follows the introduction in October 2014 of a new bespoke statement service giving people information about their starting amount and what they may be able to do to increase the level of their State Pension before they retire. Initially available to people within 5 years of retirement, this service will be expanded on a month-by-month basis.

Guidance to help people understand changes to the State Pension from 6 April 2016
The ‘Your State Pension explained’ guide consists of questions and answers to help people understand the main changes. It highlights the following:
• The State Pension will change on 6 April 2016 for people who reach State Pension age on or after that date. This is men born on or after 6 April 1951 and women born on or after 6 April 1953.
• The full level of the new State Pension will be set above the basic level of means-tested support (this is Pension Credit standard minimum guarantee, £148.35 in 2014/15). For illustrative purposes, the guide uses £148.40 as the full level for the new State Pension. The figure for 2016-17 will be decided in Autumn 2015.
• The new State Pension will be based on people’s National Insurance records and a person will normally need at least 10 qualifying years on their National Insurance record to get any State Pension. These can be from before or after 6 April 2016, and they don’t have to be 10 years in a row.
• People with no National Insurance record before 6 April 2016 will need 35 qualifying years to get the full amount of new State Pension.
• However, most people will have made, or been credited with, National Insurance contributions before 6 April 2016. How much these are worth depends on the type of National Insurance contributions they are. These National Insurance contributions will be taken into account when a person’s new State Pension is calculated.

For further information, see www.gov.uk.

Half of the UK female population now saving adequately for retirement

According to Scottish Widows’ annual Women and Retirement Report, the number of women saving adequately for retirement has shifted from a record low of 40% to a four-year high of 50% in the last 12 months. The gender gap is also closing, with a nine percentage point gap between women and men in 2013 now reduced to five.

The report suggests automatic enrolment has been met with widespread approval (62%) among working women of all ages. On average, women who are auto-enrolled are saving an average of £42.51 a month into their workplace pensions, compared to £49.27 for men.

The report also found that although overall savings levels are increasing amongst women, there still exists a significant awareness gap, with only 15% of women saying that they fully understand pensions. Only one in 10 women use an independent financial adviser, and just 37% of those have discussed pensions. 22% of women said they would be as likely to go to friends and family for information on pensions as they would be to seek advice from an IFA.

Pensions Regulator plans to publish list of pension schemes to help small employers with auto enrolment

The Pensions Regulator is proposing to publish on its website, in early 2015, a list of pension schemes that are directly available to any employer, irrespective of how many workers they have or how much they pay them, to help small and micro employers prepare for automatic enrolment. Comments on the proposal are requested by 1 December 2014.

According to research carried out by the Department for Work and Pensions, 48% of small and 79% of micro employers currently have no pension scheme and will have to choose a new one as they prepare for automatic enrolment.

Research by the Regulator suggests that:
• around one in five small and micro employers say they will be self-reliant, i.e. they won’t or are unlikely to seek advice (approx 290,000 employers);
• around one in ten will be self-reliant and don’t know how to select a scheme or think it will be difficult (approx 130,000 employers).

The Regulator says it is aware of 30-40 providers who offer a scheme for automatic enrolment. Of these, a much smaller number of schemes have indicated they will not reject employers on the basis of size or low value. Even fewer schemes have indicated they will accept all employers who approach them.

In July, the Regulator sought the views of schemes and other pensions-related organisations about the significance of the problem and what might be done to address it. There was strong consensus that the risk was real and that, in spite of a number of helpful market developments, some market failure was likely. Most schemes and organisations proactively suggested intervention by an independent body.

The consultation document presents the Regulator’s proposal for mitigating the risk that small and micro employers cannot identify a pension scheme to use for automatic enrolment. It summarises the evidence of this risk and goes on to describe the proposal and rationale behind it in more detail.

In the light of the evidence, feedback from stakeholders, and risk and economic analysis, the Regulator proposes to publish on its website early in 2015 a list of pension schemes that are directly available to any employer, irrespective of how many workers they have or how much they pay them.

To appear on the list, a scheme must:
• be available for use as a qualifying automatic enrolment scheme;
• accept without qualification any employer regardless of the amount paid to their workers (individually or on average) or when their staging date is;
• accept employers directly (i.e. not exclusively via adviser introductions); and
• agree not to refer to their presence on the list in marketing or promotional material.

The list may also indicate whether a scheme holds independent master trust assurance and / or has a public service obligation.

Entry onto the list will be voluntary and open to all who meet the criteria. Providers will be required to ensure schemes continue to meet the criteria, while the Regulator will remove schemes if regulatory concerns arise.

NEST publishes its Governance Statement and announces the appointment of a new Chairman

NEST Corporation has published its governance statement in relation to the Pension Regulator's Code of Practice for occupational trust-based defined contribution schemes. The current NEST Corporation chair, Lawrence Churchill, said he hoped that NEST’s customers “will be able to see that NEST has achieved the standards which our stakeholders ... expect”.

Separately, the Pensions Minister, Steve Webb, has announced that current ABI director general Otto Thoresen will be the next chair of NEST Corporation. He will replace Lawrence Churchill from 1 February 2015.