Employee Benefits Updates | New PPI research | JLT Global

26 April 2015

Week ending 26 April: Ombudsman clears providers over pension scam transfers| Generation Y's pension pot expectations vs reality| New PPI research

Ombudsman clears providers over pension scam transfers


The Pensions Ombudsman has dismissed complaints against Legal & General and Scottish Widows, following their decision to process transfer requests to Capita Oak (a pension scheme suspected of being involved in pension liberation/scams). The same member was involved in both cases and he has been unable to make contact with the receiving scheme. Consequently, he wanted the providers to reimburse him on the grounds that they did not conduct sufficient due diligence. However, the Ombudsman was satisfied that the processes followed were consistent with industry practice at the time the transfers took place.


In another case, involving Prudential, the Ombudsman reiterated the importance of respecting members’ statutory or contractual rights to transfer their benefits even if there is a suspicion of a pensions scam.


A JLT summary of the cases is available on request.

Generation Y expect £100,000 pension pot but over half haven’t started saving


According to new research from NOW: Pensions, Generation Y (those aged between 18 and 35) think they will have around £95,000 in their pension pot when they retire - with men expecting £111,000 and women expecting £82,000. This is despite the fact that 58% admitting that they haven’t started saving yet.


Of those surveyed, 65% of 18-25 year olds say they aren’t saving into a workplace pension, with 53% of 26-35 year olds stating that they are yet to begin saving.


When presented with information about how much would potentially come out of their pay packet each month, only 31% say they could afford to save while 44% say they can’t afford the contribution now but believe they will be able to in future.


The average salary young people say they would need to earn in order to be able to afford to make a pension contribution is £26,836.


Of those that are saving, the average amount being set aside each month is £22. If contributions continued at this level, this would deliver a pension pot of £18,000 over 30 years of saving and £56,500 over 40 years of saving assuming 5% per year investment growth.


To achieve a pension pot of around £100,000, NOW: Pensions says savers would need to set aside approximately £120 each month if they saved over 30 years and £70 if they saved over 40 years.


If used to buy an annuity at retirement, a £100,000 pension pot would buy a fixed income of between £5,000 and £6,000 a year.


New PPI research: How might the UK pensions landscape evolve to support more flexible retirements?


This is part of the PPI’s Transitions to Retirement series exploring how people access pension savings. The report builds on the findings of previous reports and, using evidence from four countries, Australia, Ireland, New Zealand and the United States (US), considers how the UK pension and retirement income system might evolve in the context of changes in the retirement landscape. In particular, this report considers the impact of the new flexibilities introduced from April 2015.Headline findings are:


  • Different pension systems include different components, such as the state pension, means-tested benefits and health or social care costs, as well as differences in the tax treatment of pensions. Direct comparisons with other countries in terms of how individuals would rationally withdraw their Defined Contribution (DC) pensions are imprecise but suggest some possibilities for the UK.
  • The behaviour of DC savers overseas can provide some insight around the direction of travel in the UK.
  • However, the UK regulatory landscape is evolving. Compared to Australia, in particular, the UK appears to be moving in the opposite direction.
  • In some respects, the UK DC market has significant differences from overseas markets. These may impact on its response to pension flexibilities from April 2015.
  • The new pension flexibilities will radically change decumulation in the UK DC market. International examples suggest areas where challenges may arise and some possible remedies for the UK Government and pensions industry.


HMRC updates IHT Manual to reflect pension changes


HMRC has revised its Inheritance Tax Manual in light of the pensions flexibility changes and their impact on pension and lump sum death benefits.


New guidance states that, where a pension scheme offers a number of different payment options following the death of a scheme member (for example, a lump sum death benefit or, alternatively, a nominee's flexi-access drawdown fund, the death benefits will only be treated as part of the member's estate for IHT purposes if the scheme provider can be bound to pay those benefits (in whatever form) in accordance with the member's directions.


So, a binding nomination specifying who should receive any flexi-access drawdown fund will not cause the death benefits to be treated as part of the deceased member's estate if the scheme provider can instead (at its discretion) choose to pay a lump sum death benefit in relation to which no binding nomination can be made.


John W Wilson LLB(Hons) FPMI ACII, Head of Technical, JLT Benefit Solutions| Email: john_wilson@jltgroup.com