Pension News - What's My Pension?
Rules on annuity purchase to be relaxed 15 Jul 2010
The government has announced plans to remove rules on the compulsory purchase of annuities for pensioners. Under existing rules, holders of money purchase pension schemes had to use their pension pot to buy an annuity (a guaranteed regular pension from an insurer) by age 75 at the latest. Chancellor George Osborne's budget increased this age to 77, and the intention is to scrap compulsory annuitisation altogether from April 2011.
This is good news for some investors who may currently be forced into buying annuity contracts when markets are depressed and rates are low.
Among the other changes announced is a cap on the amount an investor can "draw down" from their pension pot annually without buying an annuity, unless they can prove they have sufficient other income never to have to rely on the state if their pension fund runs out.
Pension inflation measure to change 8 Jul 2010
The government is proposing to change the measure of inflation used by private and public sector pension schemes to increase pensions in payment. Increases are currently linked to the Retail Prices Index (RPI) but in future this is likely to be changed to use the Consumer Prices Index (CPI), the measure used by the Bank of England to determine its monetary policy.
The CPI typically rises more slowly than RPI, because it excludes housing costs such as mortgage interest and council tax. The government has argued that this is a more appropriate measure for most pensioners who would expect to have paid off their mortgages by retirement. By changing the inflation measure, it is thought that private sector pension liabilities would be reduced by 10%, or around £100bn, say accountants KPMG.
It is hoped that the savings achieved by this change could help companies to keep final salary schemes open. There is a trend for such schemes to close because volatility of stock markets and an ageing population are increasing the costs and risks of such schemes. However, the changes will not affect all schemes, because many already enshrine a particular measure of inflation in their rules.
Retiring later to come sooner 24 Jun 2010
The coalition government is to bring forward plans to raise the state pension age for men to 66, maybe as early as 2016. The previous government's plan was to raise the pension age for everyone to 66 in 2024 and then gradually to 68 by 2046.
The default retirement age of 65 - at which workers can be legally asked to retire by employers - is also set to be axed.
Under the plans women will move to a state pension age of 66 a few years after men.
Aviva to close staff final salary pension scheme 20 Apr 2010
Aviva, the UK insurer and pension provider which also owns the RAC, has announced it is to close its staff final salary scheme to all members from 1 April next year. The firm has stressed that the announcement will not affect benefits already accrued by current or former staff.
The Aviva and RAC schemes have a combined deficit of around £3bn, and the firm says it needs to look at more sustainable alternatives.
Aviva is the latest in a long line of similar announcements from firms such as Vodafone, Morrisons, IBM and Barclays, whose salary-related schemes have fallen victim to volatility and reduced returns in stock markets, changes in tax treatment of retirement savings and increased life expectancy.
Pensions "gender gap" continues to grow 16 Feb 2010
A new survey commissioned by insurers Prudential shows that women retiring this year can expect on average less than two thirds of the pension of their male counterparts. Although pensions are down for both sexes in the last 12 months, the survey found that men retiring in 2010 will receive an average £19,593 a year, but the figure for women averages just £12,169 a year, a gap of £7,424.
The gap has widened by nearly £800 since the same survey 12 months ago. Prudential's Director of Pensions and Annuities Karin Brown believes this is "to an extent because some women take a career break to have children" but also hints at other reasons "embedded in years of history".
The Prudential's report is based on a survey by Research Plus on 6,073 people age 45 and over, in December 2009.
Government's "nest egg" plans take shape 20 Jan 2010
The Government has announced that its new workplace pension scheme will be called the National Employment Savings Trust (Nest). This scheme, formerly known as Personal Accounts, will be phased in from 2012.
Employers will be required to automatically enrol their employees into a workplace scheme, unless the employee opts out. Nest will be one option available to employers, and is particularly targeted at low to middle income earners. Under current rules, the onus is on workers to opt in to an employer's pension scheme, where one is available.
The new scheme will apply to all staff aged 22 and over and earning more than £5,035 a year. The employee will have to contribute a minimum of 4%, and the employer will be required to contribute a further 1%, rising to 2% in 2015 and 3% in 2016.
Industry experts have welcomed the new scheme, which should open up pension scheme membership to a much wider group of people - currently two-thirds of under-30s in full-time employment are not saving anything for their retirement. However some question whether the scheme goes far enough.
A 22 year-old man earning £25,000 a year and paying minimum contributions, could expect a pension of around £10,800 in today's terms at age 65, or about 43% of his salary. However a 35 year-old on the same salary, with no other pension provision, can expect only about £5,270 or 21% of his salary.
UK's largest 200 pension schemes in biggest ever deficit 21 Dec 2009
Britain's 200 largest private pension schemes are more than £100 billion in deficit for the first time. These include the schemes at British Airways, Shell and BT.
An estimated 10-15 million current and former employees are members of these final salary schemes, which pay out an annual pension based on a member's final salary.
Experts have predicted that a major company would go bankrupt because of its pension deficit in 2010.
Figures released by Aon Consulting show that the deficit of the country's largest 200 pension schemes was £103 billion this month, up from £88 billion the previous month.
Pre budget report: mixed impact on pensions 11 Dec 2009
Yesterday's pre-budget report was a mixed bag for the UK's pension schemes and pensioners. Here are some of the highlights.
- Basic state pension will be increased by 2.5% in April. Increases are normally based on the Retail Prices Index (RPI) in September, which this year was -1.4%, so this increase represents a real increase of nearly 4%. Confusingly however, additional state pension (the State Second Pension) will not be increased.
- High earners (those on more than £130,000 a year) will start to pay some tax on their pension contributions. Above this salary, higher rate tax relief will be tapered off towards the 20% basic rate relief.
- Full implementation of the new Personal Pension Accounts, into which staff will be automatically enrolled and to which employers will be forced to contribute a minimum amount, will be delayed by a year.
- Employer conributions to public sector pension schemes will be capped from 2012, meaning employees earning over £100,000 will need to pay more.
- The Government has committed to issuing more index-linked and long-dated gilts, which help ensure stability for pension schemes.
Salary related pension schemes continuing to close 27 Nov 2009
A new survey from the National Association of Pension Funds (NAPF) shows how dramatically firms are cutting back on their spending on pensions for their staff.
The NAPF represents around 1200 employers' pension schemes. Their 2009 Annual Survey reports that only 23% of private sector salary-related pension schemes are still open to new staff, down from 28% this time last year. In addition, around 62% of remaining open schemes of this type plan to close to new members within the next 5 years.
Firms are switching instead to "defined contribution" schemes, whose costs are easier for them to control. In this type of scheme, it is the employee who bears the risk of stock market volatility. The survey suggests that company contributions to defined contribution schemes have not been cut back in response to the recession.
More detail on this story can be found on the NAPF Annual Survey 2009 at http://www.napf.co.uk/News/Index.cfm
Credit crunch on pension protection 5 Nov 2009
The annual report from the UK Pension Protection Fund (PPF) has revealed a big jump in the number of troubled pension schemes in the last year.
The PPF, an organisation set up by the Government in 2005 to compensate workers whose companies went bust owing money to the pension fund, has accepted around 63 pension schemes into its protection fund in the 12 months to April this year, and was paying out compensation to 12,723 people by the end of March, close to four times the number from a year earlier.
The PPF is funded by contributions from solvent "salary-related" pension schemes. As the number or active members of this type of scheme dwindles and with investments hit by stock market volatility, there are concerns that the PPF may have to scale down the level of protection it offers to members of schemes in insolvency.
1 Nov 2009
