Week ending 25 Jan: Guaranteed Minimum Pensions Increase Order|Expected retirement income at six-year high|Govt pension tips for teens
Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2015
This draft Order sets out the revised amounts for the 2015/16 tax year for the automatic enrolment qualifying earnings band. The figures for the lower and upper earnings boundaries will be increased to £5,824 and £42,385 respectively for the 2015/16 tax year. The changes come into effect on 6 April 2015. The automatic enrolment and re-enrolment earnings trigger for the 2015/16 tax year is also set out and will remain at £10,000.
Guaranteed Minimum Pensions Increase Order 2015
For schemes with Guaranteed Minimum Pensions (GMP) inflation proofing for GMP, attributable to earnings factors for the tax years 1988/89 to 1996/97, is limited to the increase in the general level of prices or 3%, whichever is less. The CPI for the appropriate review period (the 12 months commencing on 1 October 2013 and ending on 30 September 2014) was 1.2%. The increase in the guaranteed minimum pension is, therefore, 1.2%.
Financial Services and Markets Act 2000 (Banking Reform) (Pensions) Regulations 2015
Under these draft regulations, ring-fenced banks will not have to pay towards any deficit in group-wide pensions schemes. Instead, they will be required to make arrangements to ensure they cannot be held accountable for the future liabilities of group members.
By way of background, ring-fenced banks must be economically independent of other entities in its banking group so they can never be threatened by the failure of another member. Ring-fenced bodies will therefore be required to make arrangements so they will not be liable for the future pension liabilities relating to other group members or outside companies. These arrangements include:
ensuring it does not participate in multi-employer pensions schemes, or have shared pension liabilities with parties other than certain members of its group
empowering trustees or managers to modify multi-employer pension schemes (if a ring-fenced body is the employer)—if trustees or managers refuse, then a court order can be applied for
applications to the Pensions Regulator for a clearance statement if the ring-fenced body is party to a proposed corporate restructuring
Pension overpayments and acting in good faith - Webber v Department for Education
In this case, Mr Webber returned to work following a short period of retirement. He notified his employer’s pension scheme of his return but, despite receiving a letter requesting that he update the scheme on any changes in his circumstances, he failed to do so.
In consequence, his pension was overpaid for several years. The scheme asked for the overpayments to be repaid and Mr Webber complained to the Pensions Ombudsman, arguing that he had changed his position in reliance on the overpayments.
The Deputy Ombudsman found that Mr Webber had turned a blind eye to the need to inform his scheme of any change in his circumstances. So, he was precluded from relying on the change of position defence.
Mr Webber appealed but the Ombudsman decision was upheld. The High Court held that, if a person appreciates that the payment he is receiving may be an overpayment and can easily find out but chooses not to do so then the change of position defence is not available. Mr Webber could have anticipated that he may be being overpaid and the onus was on him to make enquiries.
Retirement is changing: expected retirement income hits a six-year high
The average expected retirement income of people planning to retire this year is £17,000 per annum, according to new research from Prudential. This is a six-year high and people planning to retire this year expect to be nearly eight per cent better off than those who stopped working in 2014. The figures come from Prudential’s eighth annual ‘Class of’ study, which tracks the future plans and aspirations of people planning to retire in the next 12 months.
The figures paint a picture of significant regional variation in retirement expectations for the ‘Class of 2015’, although there is an increase in expected retirement incomes in all but two of the regions Prudential reports on.
The North East of England saw expected incomes increase by more than a quarter (27 per cent), with large increases also seen in the South West of England (19 per cent), the West Midlands (18 per cent) and London (17 per cent). Meanwhile, those planning to retire in Scotland in 2015 expect an income that is seven per cent lower on average than those who retired last year.
Government plans pension tips for teenagers
The Department for Work and Pensions is to team up with financial education charity, the Personal Finance Education Group, to produce new teaching materials to help get information about financial planning into the classroom and boost saving for later life.
With automatic enrolment due to see millions of workers put in to a workplace pension scheme from the age of 22, the government believes it’s essential young people enter employment understanding the importance of saving and the consequences of opting out.
The aim is to have high quality teaching resources available for schools across the UK later in the year. In England, Wales and Northern Ireland, the new citizenship curriculum at key stages 3 and 4 aims to ensure that all pupils are equipped with the financial skills to enable them to manage their money as well as to plan for future financial needs. At key stage 3 pupils should be taught about the functions and uses of money, the importance of personal budgeting, money management and a range of financial products and services. At key stage 4, wages, taxes, credit, debt, financial risk and a range of more sophisticated financial products and services including pensions should be taught.
New pension freedoms will put people under pressure to help struggling family members
A new report, ‘Forever Young: The New Landscape of Later-Life Planning’, from a Scottish Widows think tank reveals that the new pension reforms could have a knock-on effect on intergenerational finances, with more than one in five people expecting to use pension savings to fund care costs of elderly relatives (23%) or to invest on behalf of the wider family – e.g. in a property for children (22%).
Almost one in four believes the reforms will enable people to manage savings more effectively. However, they are outnumbered by the 39% who worry that the reforms could mean not having enough money for the whole of their retirement. Added to this picture is an increasing life expectancy.
Despite feeling the pressure to give up their retirement savings, 38% of people say they don’t know or haven’t thought about how they will survive financially in retirement. 17% intend to rely on State support, which may leave them without the means to secure their financial future in later life.
UK savers facing pension shortfall
The Future of Retirement - A balancing act, published by HSBC, explores the saving habits and barriers to saving for retirement, the continued impact of the economic downturn on retirement provision and the generation gap between how today’s working people differ from those who have already retired.
A balancing act was published in January 2015. It is the tenth in the series and represents the views of more than 16,000 people in 15 countries and territories: Australia, Brazil, Canada, France, Hong Kong, India, Indonesia, Malaysia, Mexico, Singapore, Taiwan, Turkey, United Arab Emirates, United Kingdom and the United States.
Key findings are:
1. More than two-thirds (69%) of working age people are worried about running out of money in retirement, while 66% are concerned about having enough money to live on day-to-day in later life.
2. Retirement is not the main savings priority for 85% of working age people.
3. Paying off their mortgage and/or other debts (46%) is the biggest barrier preventing working age people from preparing adequately for a comfortable retirement. This burden of debt places a greater pressure on the retirement savings of working age people than it did on those who are already retired. Just 22% of retirees who did not adequately prepare said it was because of mortgage and/or other debt repayments.
4. Almost three in ten (29%) of retirees who did not prepare adequately for a comfortable retirement were not aware of how much they needed to save.
5. Almost two thirds (65%) of retirees who did not prepare adequately for a comfortable retirement did not realise this until they had retired.
6. The majority (81%) of working age people have had their ability to continue saving for retirement significantly impacted by a life event, including losing their job (26%) and an illness or accident stopping them or their spouse from working (20%).
7. With the benefit of hindsight, more than a third (36%) of retirees say they would have started saving at an earlier age and a similar proportion (34%) say they would have saved more, to improve their standard of living in retirement.
8. Retirees know better than working age people that you need to start planning early to maintain a similar standard of living in retirement. While almost two in five (38%) of retirees say that people need to start retirement planning by age 30 at the latest, worryingly, only a quarter (26%) of pre-retirees think you need to start planning so early in life.
9. Almost two in five (38%) working age people are not or do not intend to start saving for retirement. Even more concerning, almost a third (32%) of those nearing retirement (age 45 and over) are not saving or do not intend to save for retirement.
10. More than two fifths (45%) of working age people say that the cost of living is increasing faster than their income.
11. More than a quarter (26%) of working age people say the global economic downturn has significantly impacted their ability to save for retirement.
12. In addition to more conventional ways of funding their retirement, many pre-retirees own or plan to own a second property in their home country (65%) or overseas (32%), while more than half (52%) own or plan to own jewellery, gold or diamonds.
Pensions Regulator to write to all small and micro employers about automatic enrolment
All small and micro businesses are to receive letters from The Pensions Regulator in the coming months as part of a new campaign to give them key information on automatic enrolment, including when the duties affect them.
The decision to write to more than 1.5 million addresses across the UK from the end of January aims to ensure that by the summer all employers know their ‘staging date’ – the date when they need to be ready to meet their automatic enrolment duties.
The regulator has also said it expects employers will turn to advisers for help on automatic enrolment. It has warned advisers to be prepared for clients to approach them about automatic enrolment, and says they should let their clients know to look out for a letter from the Pensions Regulator in the coming months.
Closure of DB pension schemes accelerates among FTSE 100 companies
The number of FTSE 100 companies with defined benefit (DB) pension schemes has fallen from 65 to 56 in the 12 months to 30 September 2014, according JLT Employee Benefits latest research. Of these, only 24 companies are still providing DB benefits to a significant number of employees. Over the same 12 month period, the total deficit in FTSE 100 pension schemes deteriorated by £14 billion to £66 billion whilst their liabilities rose by £44 billion to
£591 billion. A total of 16 companies have disclosed pension liabilities of more than £10 billion, whilst 21 companies have disclosed pension liabilities of less than £100 million.
ISA benefits could be transferred to surviving spouse or partner upon death
The spouse or civil partner of a deceased ISA saver will be allowed to benefit from an additional ISA allowance under draft Regulations issued by HMRC. Individuals will be permitted to save an additional amount in an ISA, up to the value of their spouse or civil partner’s ISA savings at the time of death, without this amount counting against the normal ISA subscription limit.
Publication of the Scotland Bill brings the recommendations of the Smith Commission, on more powers for the Scottish Parliament, another step closer to becoming law.
Introducing the Bill into Parliament, the government observed that Scotland will continue to share the benefits and strengths of the UK-wide system for pensions, labour market benefits and Jobcentre Plus. However, the welfare clauses in the Bill provide for key welfare measures to be designed by and delivered in Scotland. The Scottish Government will be responsible for a number of benefits, including those for disabled people and carers. Issues relating to long-term unemployment will be tackled with specific consideration of local circumstances. As set out by the Smith commission, universal credit will remain reserved, but the Scottish Government will have certain flexibilities, including the power to vary the housing cost element. Also,
The Scottish Parliament will have discretion to change the Income Tax bands and to independently vary the rates that apply to each band.
In relation to Value Added Tax, the Bill goes rather further that the Smith Commission report’s recommendations. As well as assigning to the Scottish Government’s budget the first 10% of revenues attributable to Scotland from the 20% standard rate of VAT, the first 2.5% of the 5% reduced rate attributable to Scotland will be similarly assigned.
The power to charge Air Passenger Duty in respect of passengers leaving Scottish airports will be devolved to the Scottish Parliament.
John W Wilson LLB(Hons) FPMI ACII, Head of Technical, JLT Benefit Solutions|