Pensions Solutions for Policy Makers

Pensions are a retirement fund for an employee paid into by the employer, employee, or both, with the employer usually covering the largest percentage of contributions. When the employee retires, she’s paid in an annuity calculated by the terms of the pension.

The pensions industry has seen significant change over the last 25 years, with further material challenges, both short-term and long-term, already on the horizon including the revival of the Pension Schemes Bill and its many implications.

To meet these issues head on, Eversheds Sutherland has today, in conjunction with research company, Winmark, launched a new report: The Future of Pensions.

Eversheds Sutherland is a global multinational law practice created by a combination of law firms Eversheds LLP and Sutherland Asbill & Brennan LLP, in February 2017, and is one of the 50 largest law practices in the world.

The report acts as a roadmap for pension policy makers and society as a whole. It tackles the unique challenges currently facing future generations and provides innovative ideas to the ultimate pensions questions: How do we get people to save enough for an affordable retirement, and how can we provide better financial options for retirement?

The report includes an “innovation checklist” of ideas to ensure a better retirement for all, suggested by the senior pensions industry professionals who took part in the research exercise, and on which over 350 participants were then surveyed.

British Employers Brace for Flood of Final Pension Transfers

British businesses are reporting a surge in demand from current and former staff who want to swap their “final salary” pensions for cash.

Half of the 182 employers surveyed by the Association of Consulting Actuaries, a trade body, said they had received transfer request from at least 5pc of scheme members.

Growing numbers of savers are seeking to move their pensions final salary schemes to “defined contribution” plans because of the extra flexibility afforded and superior tax treatment on death.

It is thought more than £50bn has been taken out of final salary schemes over the past two years, with the average transfer exceeding £250000.

This suggests that the option is being used by better-off employees or past employees.

But record-low interest rates have also pushed up the “transfer values” offered by pension schemes to those who give up their entitlements and take a cash transfer instead. Final salary type schemes pay a guaranteed, inflation-linked income for life. To provide equivalent benefits via an annuity has become increasingly costly, a fact reflected in higher transfer values.

In some cases, for example, people are being offered around £500000 to give up a pension paying £12500 a year.

These schemes are all but extinct in the private sector because they are incredibly expense for sponsoring employers to support. They are required by law to meet their income promises no matter prevailing market conditions.

Instead, the type of pension generally offered now is the “defined contribution” scheme were the worker builds up a pot over the course of their career – rather than a promise of any income.

Difficulties in Getting a Transfer

The majority of final salary members who want to transfer are struggling to find a financial adviser to help them do so, the ACA’s research found.

Under Government rules, savers must see a financial adviser if transferring a pension worth £30000 or more. This equates to a pension expected to pay just £1000 a year.

Savers have a right to transfer as long as they can prove they’ve taken advice, whether or not they have been recommend to go ahead with the move.

Yet many advisers are wary of taking on pension transfer business as they fear savers don’t fully understand the risks involved and may make claims for compensation years into the future. In the Nineties, billions of pounds of compensation was paid out to people who were wrongly advised to give up company plans for personal pensions.

The ACA said the dearth of willing advisers explained why only one in four requests actually resulted in a transfer.

Budget reforms, legislations and public service pension schemes

A pension is a retirement fund for an employee paid into by the employer, employee, or both, with the employer usually covering the largest percentage of contributions. When the employee retires, she’s paid in an annuity.

Advisory Excellence welcomes you to the latest edition of Pensions News, which aims to help employers and trustees keep up to date with all the latest developments in pensions legislation, guidance and case law, as provided by our membership from around the globe.

Please find a full list of the topics discussed below:

  • Budget reforms: the announcement that the 55 per cent death benefits tax charge on pension funds held in a drawdown product at death or uncrystallised after age 75 will be abolished in April 2015.
  • The Pensions Regulator: information on new questions in the DB scheme return; and the publication of the staff determinations procedure that applies to cases where a decision is made by the executive arm of the regulator.
  • DWP: an announcement about the removal of the NEST restrictions, which also gives some indication on the possible timescale for the introduction of the system for automatic transfers.
  • Legislation: the coming into force of certain provisions of the Pensions Act 2014; the progress of the Pension Schemes Bill through Parliament and the publication of notices of amendments; and amendments to the draft updated IORP Directive.
  • HMRC: the coming into force of a statutory requirement for scheme administrators to be fit and proper for the role and the publication of HMRC guidance about this requirement; and the latest Pension Schemes Services newsletter.
  • Public service pension schemes: a policy note about the NHS pension scheme and Fair Deal; and an update to the directions on valuations and the employer cost cap.
  • Other news: the annual review of the Pensions Advisory Service; and the Pension Protection Fund’s latest Technical News publication.

A budget reform typically refers to a government review and modification of its budgeting process. The budget process might stay the same, with reform limited to spending changes, such as limits on spending for example a balanced budget.