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Pension reforms start in April

Caxton House SignAn increase in the state pension rate is among a number of welfare reforms to come into effect throughout April 2018.

2 April

Funeral expenses payment

For people on qualifying benefits, Funeral Expenses Payments contribute towards the cost of arranging a funeral. From 2 April, it has been made simpler for people to claim a Funeral Expenses Payment. Changes include extending the period in which a claim can be made and allowing recipients to receive contributions from friends and family without them being deducted from the payment.

6 April

Automatic enrolment into a workplace pension

To help workers to save for their future, the automatic enrolment pension contribution rates also increased from 2% to 5% on 6 April 2018.

Automatic enrolment was created to help people with their long-term pension savings and works by requiring employers to enrol all eligible staff into a workplace pension. An estimated 10 million people will be newly saving or saving more later this year and the increase in minimum contribution rates will build on this success.

9 April

State pension

The State Pension has also increased from 9 April, in line with the ‘triple lock'. The full basic State Pension was put up by 3% to £125.95 a week. This means that the government will have raised the full basic State Pension by £1,450 a year since 2010. The full rate of the new State Pension also increased by 3%, to £164.35 a week.

One million employers enrol staff into a workplace pension

The new figures, released by The Pensions Regulator, show that over 600,000 employers have complied with their duties in the past year alone. The deadline is approaching for the remaining 150,000 employers, including new businesses set up since the government scheme was launched, to enrol their staff by June 2018.

Guy Opperman, Minister for Pensions and Financial Inclusion, said:

With one million employers – from the small sandwich shop owner to the large supermarket chain – now enrolling their staff into a workplace pension, we are creating a nation of responsible employers who are reassuring their workforce that with their support, they will have a secure retirement.

Clearly this would not have been possible without the hard work and continued support of employers across the UK. That is why we are committed to working closely with them to prepare for our recently announced proposals which will ensure even more people, including 18 to 21 year olds, lower earners and multiple job holders, can benefit from a workplace pension in the future.

Since automatic enrolment was launched in 2012, there have been ‘staging dates' gradually bringing existing employers and their staff into workplace pensions, starting with the UK's largest employers, and getting down to the smallest ones today.

Research recently published by the Department for Work and Pensions (DWP) highlighted how workplace pensions have become ‘the new normal', revealing that small and micro employers – which represent 98% of all UK businesses – are finding automatic enrolment ‘necessary', ‘sensible' and ‘easier to implement than first expected'. In addition, 4 in 5 of today's eligible workers (83%) now see saving through a workplace pension as the normal thing to do if you are in paid employment.

Currently, to be automatically enrolled into a workplace pension, you must be aged 22 to State Pension age and earn at least £10,000 per year. In return for employees contributing a minimum of 1% of their pay, employers will at least match it, with most savers also benefiting from tax relief on their contributions.

With contribution rates set to increase to 5% in April 2018 and 8% in April 2019, savers will see every penny going further as, thanks to compound interest, the earlier people save the more they will earn.

In December the government published its review of automatic enrolment, announcing a series of major policy proposals that will set millions of people – including younger people, lower earners and multiple job holders – on the path to a more financially secure retirement. The government will introduce these reforms in the mid-2020s, in partnership with employers, and learning from the contribution increases in April 2018 and April 2019. This will ensure that businesses and individuals have time to plan for the changes, and that we continue to build on the foundation already in place in an effective way.

The news coincides with a national government campaign which is encouraging people to ‘get to know your pension'.

More information

By later this year, it is expected that up to 10 million people will be newly saving or saving more through automatic enrolment, giving them a greater sense of economic security and peace of mind in retirement.

The latest figures show that there are a record 5.5 million private sector businesses across the UK. Additional figures show that workplace pension participation in the public and private sectors has increased from a low of 55% in 2012 to 78% in 2016. The most significant increases have been among the lowest earners, younger people (those aged 20 to 29) and women.

In 2016, the total amount saved annually in workplace pensions by eligible savers was £87.1 billion, a 10 year high (source: Automatic enrolment review 2017: Maintaining the momentum). It is estimated that the introduction of automatic enrolment will have increased pension contributions by around £20 billion a year by 2019/20.

Get to know your workplace pension by visiting www.workplacepensions.gov.uk.

Business owners need to take 3 simple steps to be ready for the workplace pension

  1. Choose a qualifying pension scheme that can be used for automatic enrolment. The Pensions Regulator offers a helpful directory and step by step guide about an employer's automatic enrolment duties. One option is NEST – the workplace pension scheme set up by the government which can help new business owners fulfil their obligations, without set-up costs.
  2. New business owners should look to get their workforce engaged – the law requires you write to each worker to let them know how automatic enrolment applies; and it's helpful to point out the positive benefits of pension saving for their future too. Many existing business owners have spoken publically about the motivational benefits of offering a workplace pension to their staff.
  3. Most importantly, no business owner wants to be caught by surprise costs they didn't plan for. So take ownership of the automatic enrolment process now, which will help to avoid the possibility of costly fines for non-compliance, and put in place arrangements that work for you and your staff.


Government plans for more financially secure retirement

A UK Government review suggests that automatic enrolment has changed the financial behaviour of millions of people. It claims workers now view pensions as a normal part of their pay package.

Secretary of State for Work and Pensions, David Gauke, said:

This government has rebuilt the UK's savings culture. For an entire generation of people, workplace pension saving is the new normal. And my mission now is to make sure the next generation of younger workers have the same opportunities.

We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire.

We know the world of work is changing, so it is only right that pension saving does too. This ambitious package will see more people than ever before helped onto the path towards building a secure retirement.

The review's recommendations, which will now be progressed and legislated for where necessary, will see:

  • automatic enrolment duties continuing to apply to all employers, regardless of sector and size
  • young people, from 18 years old, benefiting from automatic enrolment, introducing 900,000 young people into saving an additional £800 million through a workplace pension
  • workplace pension contributions calculated from the first pound earned, rather than from a lower earnings limit – this will bring an extra £2.6 billion into pension saving, improving incentives for people in multiple jobs to opt-in, and simplifying the way employers assess their workforces and calculate contributions
  • the earnings trigger remaining at £10,000 for 2018/19, subject to annual reviews
  • contribution levels reviewed after the implementation of the 8% contribution rate in 2019
  • the government testing a series of ‘targeted interventions' – including through opportunities to work with organisations who act as ‘touch points' for the 4.8 million self-employed people, such as banks and those who contract labour – to explore how technology can be used to increase their pension saving

Ruston Smith, Trustee Director at Peoples' Pension who led on the theme of engagement, said:

Automatic enrolment has been a game changer – helping bring millions more people into pension saving. As we look to the future there's clearly a challenge for both the pensions industry and for government to help and encourage people to engage with their retirement savings and to plan ahead. Creating a much simpler language and conversation around retirement savings is just one important step we need to take.

Jamie Jenkins, Head of Pensions Strategy at Standard Life, who led on the theme of coverage, said:

The measures we are announcing today will ensure that as many people as possible have the opportunity to start to build up pension savings. Since this policy was introduced it has enjoyed huge success and it is right this is extended to include young workers, and those who might not have a standard employment set-up.

Chris Curry, Director at Pensions Policy Institute, who led on the theme of contributions, said:

We all want to be able to enjoy a comfortable retirement and to maintain our standard of living. However the review has shown that one of our greatest challenges remains that many people are still actually under-saving. By removing the lower earnings limit we'll be enabling people to contribute towards their pension savings from the first pound of savings.

Since its launch in 2012, automatic enrolment has seen more than 9 million people enrolled into a workplace pension, with a large number of new savers under the age of 30. However the review estimates there are still around 12 million individuals under-saving for their retirement, representing 38% of the working age population. Of this 12 million, some 6 million are ‘mild under-savers'.

The government says it is committed to normalising pension saving among workers; helping lower earners build financial resilience for retirement; to supporting people, predominantly women, in multiple part-time jobs, and to simplifying automatic enrolment for employers.

The government will work towards introducing reforms in the mid-2020s in partnership with employers and the pensions industry.


Government and FCA crack down on older pension scheme charges

The saving revealed today (6 December 2017) means high charges levied on members of older workplace, or legacy, pension schemes, are soon expected to be a thing of the past.

A report published by an Independent Project Board - commissioned to investigate high charges - found that £25.8 billion of assets in defined contribution workplace pension schemes were potentially exposed to charges of more than 1%, failing to give savers value for money. This has now been reduced by over 90%.

Since 2013, the government and the Financial Conduct Authority (FCA) have worked closely with these pension providers to bring their legacy schemes in line with the standards of new workplace pension schemes introduced since the launch of automatic enrolment.

Guy Opperman, Minister for Pensions and Financial Inclusion, said:

"No one that saves into a pension scheme should have concerns that their savings are at risk of being eroded by excessive charges.

"That's why we are tipping the balance back in favour of consumers, who will now see their schemes delivering better value and increasing their income in retirement.

"By working closely with regulators and providers, we are committed to getting consumers the best possible deal."

The Independent Project Board found that these pension schemes, which are contract and trust-based and not covered by the government's pension charge cap on workplace pension schemes used for automatic enrolment, were charging excessive amounts for annual administrative charges, without justifying the extra costs.

Of the £25.8 billion of assets covering 1.5 million pension pots, between £5.6 billion and £8 billion was potentially exposed to charges above 2%, and nearly £1 billion to charges above 3%, with the latter often members with small pension pots worth less than £10,000.

The government and FCA continue to work with the small number of remaining providers to eliminate high costs and charges by the end of 2018, and has been clear that it will legislate, if necessary.

This is the next step government is taking to ensure savers receive good value for money from their pension, that their pension will meet their needs for retirement, and that savers are better able to maximise savings.

DWP and FCA published the most recent legacy audit report Poor value workplace pension schemes: a review in December 2016.


Master trust pension schemes consultation

An ‘authorisation and supervision regime' will ensure that tough new powers are in place to protect the 7 million members of master trust schemes, who have a combined £10 billion worth of assets invested. The changes will provide them with equivalent protection to members in other types of pension schemes.

Master trust schemes will be assessed against 5 key tests:

  • persons involved in the master trust scheme are fit and proper
  • that the scheme is financially sustainable
  • that each scheme funder meets specific requirements in order to provide assurance about their financial situation (including through presenting a business strategy and full, audited accounts)
  • the administrative and governance systems/processes used in running the scheme are sufficient
  • the scheme has an adequate continuity strategy

Under these plans, consumer savings will be more secure with master trusts being required to meet strict criteria on all aspects of operations and governance.

New regime

The new regime will be administered by The Pensions Regulator. Under the new regime all current and prospective master trust schemes will need to apply for authorisation to operate in the market. The regulator will also have greater ongoing powers to work with, and if necessary, de-authorise master trusts where they are at risk of failing.

Master trusts will also have to demonstrate on an ongoing basis that they continue to meet the strict authorisation criteria, including demonstrating provisions to ensure member funds are protected in the event of a scheme needing to be wound up.

The master trust market has grown rapidly since 2012. There are currently 87 master trusts, which now represent 90% of savers who have been automatically enrolled into a workplace pension.

The announcement follows the passing of the Pension Scheme Act in April 2017, which introduced this regime proposal. It is expected that the new regulations will come into effect from October 2018.

More information

As a type of multi-employer pension scheme, master trusts have the potential to offer great advantages for members and employers, due to their scale, good governance and value for members.

The vast majority of employers have chosen to use a master trust pension scheme to meet their automatic enrolment obligations rather than set up and run their own workplace pension scheme. This has led to a considerable expansion of the master trust market.

It is estimated that around 11 million workers will either be newly saving or saving more into a workplace pension by 2018, generating around £20 billion in additional pension saving by 2019/20.


Government announces plans for disclosure of pension costs and charges

Savers will also be able to access information about where their money is invested, opening up the possibility of people having greater choice over where their pension is invested.

Failure to provide this information could cost occupational workplace pension scheme trustees up to £50,000 from April 2018.

Up to 10 million people could benefit from the move.

This is the next step the government is taking to ensure savers receive good value for money from their pension, that their pension will meet their needs for retirement, and that savers are better able to maximise savings.

Secretary of State for Work and Pensions David Gauke said:

The government is beginning to address a fundamental imbalance that exists in the pensions industry.

For too long savers have been in the dark about where their pension is invested, what they are paying for, and why they are paying it.

I want people to have a strong sense of personal ownership over their pension savings. These proposals do just that and will open the industry.

By giving people the tools to better understand their options and compare value for money, I believe we are creating a generation of smarter, more informed savers.

Today's announcement comes on the back of the latest pension charges survey which shows that 98% of eligible members are at or below the 0.75% cap introduced by government.

However with the survey also showing a clear lack of transparency on some costs in pension schemes, the government is proposing that members receive an annual benefit statement where they can find the costs and charges for their scheme.

Publication of charge and transaction cost information will enable pension scheme trustees and others to compare the value for money they are receiving with their peers, thereby driving better market outcomes.

Government will also compel schemes to publish an illustration of the compounding effect of the costs and charges affecting their pension savings.

The Financial Conduct Authority (FCA) will consult on corresponding rules for workplace personal pensions in the new year.

The consultation is open for 6 weeks.


New timetable for State Pension changes

Caxton House SignThe Department for Work and Pensions has today published its review into the State Pension age, proposing a new timetable for the rise to 68, to maintain fairness between generations in line with continuing increases in life expectancy.

Latest projections from the Office for National Statistics show that the number of people over State Pension age in the UK is expected to grow by a third between 2017 and 2042, from 12.4 million in 2017 to 16.9 million in 2042.

Under the proposed new timetable, the State Pension age will increase to 68 between 2037 and 2039, earlier than the current legislation which sees a rise between 2044 and 2046. The change will affect everyone born between 6 April 1970 and 5 April 1978.

Those affected by this proposed timetable will on average still receive more State Pension over their lifetime than generations before them.

When the modern State Pension was introduced in 1948, a 65-year-old could expect to spend 13.5 years in receipt of it – 23% of their adult life. This has been increasing ever since. In 2017, a 65-year-old can now expect to live for another 22.8 years, or 33.6% of their adult life.

Failing to act now in light of compelling evidence of demographic pressures would be irresponsible and place an unfair burden on younger generations. Keeping the State Pension age at 66 would cost over £250 billion more than the government's preferred timetable by 2045/46.

Secretary of State for Work and Pensions David Gauke said:

"I want Britain to be the best country in the world in which to grow old, where everyone enjoys the dignity and security they deserve in retirement.

"Since 1948 the State Pension has been an important part of society, providing financial security to all in later life. As life expectancy continues to rise and the number of people in receipt of State Pension increases, we need to ensure that we have a fair and sustainable system that is reflective of modern life and protected for future generations.

"Combined with our pension reforms that are helping more people than ever save into a private pension and reducing pensioner poverty to a near record low, these changes will give people the certainty they need to plan ahead for retirement."

Today's announcement agrees with the timetable set out by John Cridland CBE in March 2017, which proposed bringing forward the increase in State Pension age to 68 between 2037 and 2039.

Mr Cridland's review highlighted that under the previous timetable, by 2036/37 annual spending on the State Pension would have increased by 1% of GDP on 2016/17, equivalent to £20 billion in today's terms – or a rise in taxation of £725 per household.

A separate report from the Government Actuary's Department in March 2017 considered 2 alternative scenarios for the State Pension age, under the government's principle that an individual should spend on average up to one third of their adult life above State Pension age.

No one born on or before 5 April 1970 will see a change to their current proposed State Pension age.


‘State Pension top up’ scheme starts 12 October 2015

State Pension Top Up BannerFrom 12 October 2015, a new scheme is being launched helping anyone reaching State Pension age before 6 April 2016 to safeguard their long-term financial security.

Men aged 65 or older and women aged 63 or older are being offered a chance to increase their State Pension by up to £25 a week, giving them guaranteed extra income for life.

The scheme will remain open for 18 months and those who think they can benefit will be able to buy additional State Pension – worth up to £1,300 a year. In most cases, surviving spouses and civil partners will be able to inherit at least 50% of the extra pension.

This is an opportunity for people to increase their guaranteed retirement income for the years ahead with a boost which will be index-linked, helping to protect pensioners and their spouse or civil partner from inflation.

Minister for Pensions, Baroness Altmann said:

This government’s commitment is to provide security for working people at every stage of their lives, and that includes giving people the chance to enjoy a financially secure retirement. We have already committed to protecting pensioner incomes with the triple lock – uprating the basic State Pension by at least 2.5% each year of this Parliament. The new State Pension, coming in from April 2016, will ensure a simpler, more sustainable State Pension for the pensioners of tomorrow.

Top up is an opportunity for people already retired, or reaching State Pension age before April 2016, to boost their later life income. It won’t be right for everybody and it’s important to seek guidance or advice to check if it’s the right option for you. But it could be particularly attractive for those who haven’t had the chance to build significant amounts of State Pension, particularly many women and people who have been self-employed.

With the scheme launching tomorrow, anyone who thinks they might benefit should seek advice and can visit our online calculator and find out more.

The cost of a State Pension top up is based on a person’s age and takes average life expectancy into account. For a 65-year-old, an extra £10 of pension a week will cost £8,900, whereas for a 75-year-old the contribution rate for the same amount of pension is £6,740.

More information on State Pension top up and how to apply is available at www.gov.uk/statepensiontopup. This includes an online calculator which illustrates the contribution rates based on age and the additional amount someone wishes to receive.

Millions of pensioners protected with Winter Fuel Payments

Caxton House SignThe benefit helped ensure pensioners were able to stay warm during the coldest spells of last winter, with a one-off payment of between £100 and £300 to help towards the cost of heating their homes.

The government’s commitment to protect the elderly by maintaining universal pensioner benefits means that nearly 9 million households were helped by the scheme, with 6.7 million women and 5.7 million men benefiting. In total, more than £2.1 billion was paid out.

Work and Pensions Secretary, Iain Duncan Smith MP, said:

Winter can be hard for older people, particularly those who are vulnerable, and they should have the confidence to turn up the heating when they need to, safe in the knowledge that they will be able to afford to pay the bill.

Winter Fuel Payments give people this peace of mind and remain central to our one nation commitment of a compassionate society which puts economic security at its heart.

On top of Winter Fuel Payments, around 2 million households also receive help each year through the Warm Home Discount scheme. This year’s payment is giving more than 1.3 million of the poorest pensioners an extra £140 off their energy bill.

The government also provides Cold Weather Payments of £25 a week, giving an additional layer of support for vulnerable people in low-income groups during the very coldest snaps.

As well as UK recipients, an additional 140,000 expat pensioners living in the European Economic Area or Switzerland also received a payment, costing a total of £24.5 million.

Winter 2015 to 2016

In winter 2015 to 2016 you will qualify for Winter Fuel Payments if:

  • you were born on or before 5 January 1953 (this date changes every year)
  • you will be living in the UK throughout the week of 21 to 27 September 2015

People may qualify for a payment if they live in Switzerland or a European Economic Area (EEA) country and have a genuine link with the UK. This year new rules are being introduced and Winter Fuel Payments will no longer be payable to people in EEA countries which have an average winter temperature that is higher than the warmest region of the UK. This includes people living in Cyprus, France, Gibraltar, Greece, Malta, Portugal or Spain.

New Tax Guidance on Pensions

Changes introduced from 6 April 2015 allow people to access their pension savings more freely and easily than before.

Please view our video which focuses on some of the more important points.

We have also produced a booklet which helps explain matters in more detail.

Our guide:

  • aims to help you understand the tax treatment of the options available within the new, more flexible, regime.
  • is based on our current understanding of the Taxation of Pensions Act 2014, and the Pension Schemes Act 2015.
  • does not cover every small detail, as the rules are complex – it is a broad guide only.
  • does not cover more complicated arrangements like taking money out of a pension and then putting it back into another scheme (sometimes called ‘tax free cash recycling’). If your plans include these complications, you will need to take professional advice, and will probably have to pay for it.
  • is aimed at people on relatively low incomes with smaller pension savings – generally those who have income of £20,000 a year or less.

We recommend you read it all, but it might help you to understand these key points:

  • Pension flexibility came in from 6 April 2015
  • If you are over 55 and have a ‘defined contribution’ or ‘money purchase’ pension, your pension provider might allow you to take what you like, when you like from your pension
  • Resale of existing annuities deferred until at least April 2017
  • ‘Defined benefit’ or ‘final salary’ pensions will still have stricter rules
  • There is no rush!
If you would like to obtain a copy of this form, please follow this link to our contact form.