Newsletter – March 2015

In his last Budget before the election, Chancellor George Osborne has reduced the Lifetime Allowance (LTA) again and published a call for evidence on creating a secondary market for annuities.

With effect from 6 April 2016, the LTA is reduced from £1.25 million to £1 million. It will then increase annually in line with CPI from 6 April 2018. HMRC analysis shows that less than 4% of individuals currently approaching retirement have a pension pot worth more than £1 million, so the change will affect only the wealthiest pension savers. The Annual Allowance (AA) is unchanged.

A few days earlier, Ed Miliband pledged to reduce both the LTA and AA to fund lower tuition fees for university students. He said that Labour would also restrict tax relief on pension contributions for those earning more than £150,000 a year from 45% to 20%. This led to the Association of Consulting Actuaries (ACA) sending an open letter to all of the political parties calling for no “knee jerk” changes to an already complex system.

The government’s consultation on creating a secondary market for annuities aims to give people who have already bought an annuity the same flexibility in how they access the value of their savings as those taking their pension after April 2015.

From April 2016, people will be able to sell their annuity income to a third party, subject to the agreement of their annuity provider. The proceeds of the sale could then be taken directly or drawn down over a number of years, and would be taxed at their marginal rate. It is thought that purchasing the right to annuity payments could be attractive for a range of institutional investors.

Guide to retirement communications

The Pensions Regulator has published a draft guide for trustees, administrators and advisers of occupational pension schemes that provide flexible benefits (DC including AVCs and cash balance benefits) on changes to the disclosure regulations in relation to retirement communications.

From 6 April 2015, where the disclosure regulations apply, trustees must automatically tell affected members how to access the new government service Pension Wise. This must be at least four months before the member reaches their normal retirement date or, if the member is over or within four months of minimum pension age (currently 55), when there is contact with them about taking their flexible benefits. In addition to signposting Pension Wise, the member must also be given information about the options available to them within the scheme, and potentially from other pension providers if they were to transfer.

The guidance includes generic risk warnings on the four main retirement options (annuity, flexi-access drawdown, lump sums at different stages and cashing in the whole pot) which the regulator suggests should be sent at the point the member is required to make a final decision about how to take their retirement benefits (i.e. later than the initial information). The member should also be asked to confirm whether they have received Pension Wise guidance or regulated advice and that they have read the generic risk warnings.

Company news

The chairman of the consortium that has bought BHS for £1 has said that the retailer’s pension fund is the biggest challenge facing the company. The fund is reported to have a deficit “significantly higher than £100m” with the company currently paying contributions of £10m per year.

Unions at Tata Steel are to ballot workers on industrial action over plans to close the company’s final salary scheme and replace it with a defined contribution scheme. The move would affect around 17,000 workers.

The Pensions Regulator has banned two individuals and a trustee company, Avalon Pension Trustees Limited, from acting as pension trustees, following a pension scams investigation.

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