The beginning of April 2014 saw a significant number
of smaller businesses joining into the Auto-Enrolment pension revolution that
is sweeping across the UK.
It is clear that the numbers of individuals being Auto-Enrolled into pensions
is climbing every day. I received an e-mail on 1 April 2014 (not an April
fools) to confirm that the one millionth member had been enrolled within the
National Employer Savings Trust (NEST) as an example.
The details of Auto-Enrolment Pensions are nothing new and further details are
available on the Chapters Financial website (See Businesses and SMEs section).
We have seen the largest employers first being enrolled from October 2012 with
many employers with team numbers above 250 being enrolled by early 2014.
Living
Longer/ Retiring Later/ State Pension Burden
It is a fact that we are all living longer and that our time in retirement is
being extended. The financial burden on State Pensions is ever-increasing and
we will see the State Pension age increase from 65 up to a proposed age of
around 68 by 2026. We will also see the equalisation of State Pensions being
rolled out over the course of the next 18 to 24 months. This should see the
State Pension value equalised at approximately £145 a week (£7,540 pa/ paid gross
but taxable) for all qualifying recipients post this change (subject to a
suitable NI record).
This age increase is also reflected in the minimum age at which pension
benefits can be accessed, which is currently 55 years old (having increased
from 50 some years ago) and is proposed to increase to age 57 in 2028, as
confirmed here: https://www.gov.uk/government/consultations/freedom-and-choice-in-pensions
Staging
Dates 2014
The key date for employers in meeting their Auto-Enrolment requirements has
been their Staging Date. This is the date to which they must enrol their employees
into any new Workplace Pension, if they do not have a qualifying scheme that
exempts them from the legislation. In our experience, this means most employers
need to make changes to their existing schemes, Defined Benefit (DB) or Defined
Contribution (DC), or implement a new pension scheme.
As you may be aware, the majority of employers in the UK are not large and
therefore it is anticipated that a far higher number of employers will need to
meet their Auto-Enrolment requirements during the course of 2014/2015.
What
needs to be considered?
Requirements may include arranging a scheme, assessing the workforce for their
eligibility, implementing notifications to the staff, reporting to The Pensions
Regulator and implementing the scheme at the correct date with contributions
and the relevant data for employees to be able to consider their options once
they are opted into the scheme.
As the burden of this legislation comes to bear on many SME’s over the course
of the next 12 months we are finding that many employers are contacting us to
secure our services going forward to ensure that they meet their obligations.
It is from our experience of arranging these types of schemes that we know it
is important that the process is started some six months out to ensure
compliance with the new requirements. The Pensions Regulator has made it very
clear that they will take action against employers who do not meet their
requirements and details of their enforcement options are here: http://www.thepensionsregulator.gov.uk/employers/what-happens-if-i-dont-comply.aspx#s10310
Real
Benefits
I have no doubt that this framework for pension savings will bear significant
fruit in future years in protecting retirement benefits for those people
retiring in the future. It is also interesting and encouraging to note that the
opt-out rate for employees seems to be very low, running at an average of
around 10.8% as noted by the publication, Professional Pensions, here: http://www.professionalpensions.com/professional-pensions/news/2309949/five-surprising-facts-from-the-dwp-s-auto-enrolment-evaluation
Chapters
Financial Limited is not responsible for the content of external webpages.
If you would like advice and guidance on implementing your Pensions
Auto-Enrolment scheme and to manage its implications and costs to your business
then please do not hesitate to contact the team at Chapters Financial at our
Guildford or Woking offices.
No individual advice is provided during the course of this blog.
Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Personal Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct
Authority, number 402899.
Sunday, 6 April 2014
Tuesday, 1 April 2014
Enjoy your ‘income’ gap year
Following
the Budget of 2014, many changes are proposed to the way that pension benefits
can be drawn. Of course much of the devil lies in the detail and it will be
interesting to see how the legislation is detailed, the way that providers
interpret the documentation and also the way they apply this to their schemes.
There is a view that there will be some who will decide that they will take their pension benefits in the form of tax-free cash, with the balance being drawn as a lump sum which will of course be taxable and very helpful to the Treasury.
Many financial planners have been using cash flow modelling for some years and this can have its benefits if applied correctly. I do wonder whether financial planners will be the ones that will need to guide individuals in the way that pension benefits can be bought and also to detail the concern that this fund needs to last the balance of their life rather than for a short term period whilst they enjoy themselves on pastimes that are possibly not affordable.
One thought that springs to mind is that we may see the proliferation of ‘gap years’. These could be years whereby individuals leave work and create a year where they receive no income from other sources and draw pension benefits in that year trying to take lump sums from pension schemes either taxed at nil rate or taxed at basic rate possibly rather than higher rate had they drawn all of their benefits in one year.
This might be a creative way of reducing the tax take on the pension benefits going forward.
Obviously time will tell how this legislation will manifest itself, although it is good that the Chancellor has proposed that individuals who are drawing retirement benefits receive face-to-face advice. We look forward to being involved in providing advice to our clients and enquirers.
If you would like to know more about the way that pension benefits can be drawn then please do not hesitate to contact the team at Chapters Financial.
No individual pension/ financial advice is provided during the course of this blog.
Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Personal Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.
There is a view that there will be some who will decide that they will take their pension benefits in the form of tax-free cash, with the balance being drawn as a lump sum which will of course be taxable and very helpful to the Treasury.
Many financial planners have been using cash flow modelling for some years and this can have its benefits if applied correctly. I do wonder whether financial planners will be the ones that will need to guide individuals in the way that pension benefits can be bought and also to detail the concern that this fund needs to last the balance of their life rather than for a short term period whilst they enjoy themselves on pastimes that are possibly not affordable.
One thought that springs to mind is that we may see the proliferation of ‘gap years’. These could be years whereby individuals leave work and create a year where they receive no income from other sources and draw pension benefits in that year trying to take lump sums from pension schemes either taxed at nil rate or taxed at basic rate possibly rather than higher rate had they drawn all of their benefits in one year.
This might be a creative way of reducing the tax take on the pension benefits going forward.
Obviously time will tell how this legislation will manifest itself, although it is good that the Chancellor has proposed that individuals who are drawing retirement benefits receive face-to-face advice. We look forward to being involved in providing advice to our clients and enquirers.
If you would like to know more about the way that pension benefits can be drawn then please do not hesitate to contact the team at Chapters Financial.
No individual pension/ financial advice is provided during the course of this blog.
Keith Churchouse FPFS
Director
Chartered Financial Planner
ISO 22222 Personal Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.
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