Pensions ‘freedom and choice’ to proceed
The government has decided to proceed with the changes, announced in the Budget, to how people can access their pension savings at retirement. In its response to the consultation, the government has confirmed:
• A permissive statutory override will be introduced to ensure that all defined contribution schemes are able to offer the increased flexibility if desired, without the need for an immediate change to the scheme’s legal documents (although communication to members will need to be carefully considered);
• Transfers from private sector defined benefit schemes (and funded public sector schemes) will continue to be allowed, subject to the member having taken advice from an independent financial adviser. The government also intends to consult on allowing defined benefit members to access their savings directly rather than having to transfer to a defined contribution scheme first;
• The annual allowance for further tax-relieved pension savings for those who choose to draw down more than their tax-free lump sum will be reduced to £10,000. This aims to prevent the ‘recycling’ of pension contributions in order to obtain multiple tax relief;
• The minimum age at which people can access their savings will increase from 55 to 57 in 2028 and remain 10 years below state pension age thereafter. The minimum age for trivial commutation will be lowered from the current age of 60.
The much debated ‘guidance guarantee’ remains, although it will now be provided by independent organisations such as the Pensions Advisory Service (TPAS) and the Money Advice Service (MAS). The Financial Conduct Authority (FCA) will be responsible for setting standards for this guidance. Given the importance of the above changes, please contact your consultant to discuss them further.
NEST reaches one million members
The National Employment Savings Trust (NEST) has published its latest annual report which shows the extent of the impact of auto-enrolment. NEST now has over one million members, compared with 80,000 at the same time last year, and is working with some 4,700 employers compared with 347 last year.
Smaller employers now need to get to grips with their auto-enrolment duties which are approaching rapidly. Interestingly the level of employee ‘opt outs’ is somewhat lower than expected. Employers clearly need to factor these costs and future increases in their contributions into their remuneration package and financial plans. Again please contact your consultant if you wish to discuss these
New government appointments
The Department for Work and Pensions (DWP) has announced that David Harker CBE will be the new Chair of the Pensions Advisory Service (see item overleaf on the government’s ‘guidance guarantee’). Mr Harker has been a member of the Financial Conduct Authority Board since 2013 and was previously the chief executive of Citizens Advice.
The DWP has also appointed Dr Ros Altmann CBE as Business Champion for Older Workers. Her appointment marks the latest step in the government’s drive to support over-50s in the UK labour market.
The BT pension scheme has put in place a longevity swap covering £16 billion of the scheme’s liabilities using an insurance company created by itself and Prudential Insurance Co of America. The arrangement is the biggest of its kind in Britain.
Auto-enrolment provider NOW: Pensions has announced changes to its lifestyle investment strategy in light of the new pension flexibilities being introduced by the government. Previously, members’ funds were switched into a fund targeting annuity purchase as the member approached retirement. Going forward, they will be transferred to a cash fund.
This Update should not be relied upon or taken as an authoritative statement of the law. For more information, please contact us using the details shown.