Independent Financial Advisers Glasgow

Pensions experts have identified a shopping list of key areas where the Government needs to focus its energies if it is to meet its Red Tape Challenge and reinvigorate workplace pensions.

These include the overly prescriptive rules on the type of pensions employers need to offer, and how employers communicate with the members of their pension schemes.

Responding to the Government’s “Pensions Spotlight”, the National Association of Pension Funds (NAPF) has called on the Government to seize the moment by streamlining regulations. It added that the Government needs to ensure that the regulatory regime for pensions protects members’ interests while not imposing unnecessary burdens on employers who are providing good quality pensions to their workforce.

Joanne Segars, NAPF Chief Executive, said:

“We welcome that the Government is taking a long hard look at pensions regulation. This is a positive first step in its wider commitment to reinvigorate workplace pensions.

“We need a regulatory system that protects members’ interests, whilst also supporting good quality workplace pensions.”

Two in five (40%) people planning to retire this year would be happy to work past 65 if they had the chance, according to new research from Prudential.

The main motivation for more than two thirds (68%) of this year’s retirees who want to stay in the workforce past 65, is a desire to remain physically healthy and mentally active, while 39% do not like the idea of retiring and just staying at home. More than half (54%) claim that they enjoy working.

However, despite wanting to stay in work, only 13% would choose to continue to work full-time with their current employer. Nearly half (49%) of those retirees who want to work past 65 years old would prefer to work part-time, either with their current employer or in a new role, in order to strike a better work life balance.

More than one in 10 (11%) of entrepreneurial retirees would consider starting their own business after the age of 65 or earn money from a hobby in order to keep working. Five per cent would work as charity volunteers.

Recent ONS figures show that average retirement ages are rising, with men now retiring at an average age of 64.6, compared with 63.8 in 2004, and women working until 62.3 years compared with 61.2 previously.

The top priority for people intending to retire this year is saving money to ensure they have enough to live on in retirement. Nearly six out of ten people (57%) said saving will be a top priority, according to new research from Prudential.

The insurer’s Class of 2012 study, which looks at the finances and expectations of those planning to retire this year, also found that women are more likely than men to prioritise saving during retirement – 62% of women will make this a priority compared with 52% of men.

Although saving money is a key focus, those intending to retire this year are still determined to have a fun-filled retirement. More than a third (36%) say that spending money on travelling the world will be a priority for them, while 43% will make spending money on enjoying themselves a priority.

Vince Smith-Hughes, retirement income expert at Prudential, said: “Today’s retirees are likely to spend longer in retirement than previous generations so it is encouraging to see that they understand the importance of saving money to ensure they can live comfortably. Saving shouldn’t be regarded as something that suddenly stops once you retire, and the current generation of retirees seems to be more aware of this than ever before.

“Saving as much money as possible, from as early an age as possible, is the best way to ensure you can afford a comfortable lifestyle in retirement. Consulting a financial adviser can also be an important step in helping retirees to make the most of their pension pots.”

New research published by the Institute of Directors (IoD), in association with Lucida, has revealed that the many people are choosing to save for their retirement with ISAs rather than pensions.

The trend is illustrated by the fact that the amounts paid into ISAs increases sizeably year on year, rising from £35.7 billion in 2007, to £43.9 billion in 2009/10, while employee and individual pension contributions peaked in 2007 at £25.6 billion, and fell to £22.9 billion by 2009.

This trend seems set to continue or even accelerate, with payments into ISAs jumping by almost £10 billion to a total of £53.8 billion in 2010/11.

The report, “Roadmap for Retirement Reform”, written by IoD pensions expert Malcolm Small, explores the scale of the challenge posed by an ageing population, a society habitually dependent on debt, low savings rates and high numbers of people with little or no pension provision. The key proposals put forward to address this situation include:

• Raising the state retirement age to 70 sooner than is currently planned – by raising the age to 68 in 2032, 69 in 2038 and 70 in 2044. The Government currently plans to raise the retirement age to 68 in 2046.
• Providing a single, flat-rate, universal, basic state pension, abolishing means-tested retirement income benefits such as Pension Credit.
• Radically reforming and simplifying the pension architecture, which has become hugely complex, unattractive and enmeshed in a forest of regulation.
• Developing a formal UK Government savings policy – the Government currently has no over-arching policy to encourage savings, despite the stark lessons in recent years on the danger of over-indebtedness

The Government’s proposals to equalise Guaranteed Minimum Pensions (GMPs) would create massive costs and administrative burdens, increasing pressure on pension funds at a time when they are struggling with a tough economic environment, pensions experts have warned.

GMPs are sums of money built up by members of occupational pension schemes who have contracted out of the State Earnings-Related Pension Schemes (SERPS). The Government claims that it has to legislate to put the UK in line with EU law.

The National Association of Pension Funds (NAPF) argued that new legislation being proposed by the Department for Work and Pensions (DWP) would cost pension funds billions of pounds in extra liabilities and administration, and could also affect public sector pensions.

In its response to the DWP consultation on GMP equalisation, the NAPF has urged the Government to scrap its proposed new regulations. It also questioned whether there is any legal requirement for equalisation, and it has asked the Government to publish the legal advice on which it is basing its policy-making.

The UK’s leading pensions body also warned that, instead of clarifying the situation, the planned regulations would create more uncertainty for pension fund trustees, who would not know whether or not they would have to equalise GMPs.

Six months to go until Automatic Enrolment begins and new figures show that final salary pension scheme payouts will reach a record high and peak this year.

Statistics from the Department for Work and Pensions show that the average amount paid from Defined Benefit (DB) schemes will reach the highest ever level this year and the amount will fall thereafter.

The average DB pension in payment will peak at around £7,100 a year towards the end of 2012 and will fall to just above £2,400 a year by 2060, marking a significant shift in pensions saving.

Currently, around six million pensioners benefit from some form of DB scheme but only 10% of firms have final-salary schemes that are still open. Workplace pension reform will bring up to ten million people into pension saving from this year.

Starting in October, people working for the largest employers will be automatically enrolled into a workplace pension scheme. Smaller businesses will follow. Individuals, employers and the Government will all contribute to an employee’s pension.

The Government must act to help savers with small pension pots get better outcomes in retirement, the National Association of Pension Funds (NAPF) has said. Hundreds of thousands of small pension pots are already “stranded”, a problem that is likely to get worse after the introduction of automatic enrolment.

Under automatic enrolment, as workers change jobs it is likely they will build up multiple pension pots. Small pots can be burdensome for employers and pension schemes, and they may not offer the best value for money for savers.

A study from the Institute of Fiscal Studies jointly funded by the NAPF and the Economic and Social Research Council highlighted the full-scale of the problem. It showed that £1.4bn is already trapped in 700,000 stranded workplace defined contribution (DC) pension pots worth less than £5,000.

In its response to the Government’s consultation on small pension pots, the NAPF reiterated its call for a new way of thinking about DC pensions. Large scale, good quality trust-based pension schemes would secure better outcomes for savers and would also deal with the small pots problem. The NAPF called on the Government to set up a framework for new Super Trusts that will make it less likely that people will transfer their pension pots, and give them the opportunity to consolidate their existing pension provision.

A report by Friends Life has revealed that more needs to be done to ensure women's long-term savings are not hampered by the impact of starting a family.

The latest Visions of Britain 2020 report has exposed a worrying number of women who are less clued up about pensions than their male counterparts, and the company is urging employers to do more to combat the issue.

The report has also found that almost half (49%) of women do not save into an employer-sponsored pension scheme. A further one in ten are unsure if they save at all.

Kim Clarke, Head of HR at Friends Life, commented:

"We believe that employers may well consider the short-term financial impact of female employees starting a family through supportive flexible working practices but what about the long-term impact? When women return to work they often go back part time in the first instance, meaning that the percentage of their salary that they can save is much smaller, while at the same time their outgoings have increased. Unless drastic changes are made, many women may find that starting a family could negatively affect their retirement pot."

A new report from LV= has revealed that retirees in the UK have experienced a 33% increase in living costs since the year 2000.

Research reveals the total expenditure of the UK’s 10.6 million retirees equals £96 billion a year – this means on average a retired couple spends £17,922 a year and a single retiree spends £9,917 a year – or £190.70 a week. With the average pensioner in the UK receiving state pension income of £102.15 a week, retirees are spending up to £88.55 a week (or 87%) more than the average state pension.

The biggest dent to a pensioner’s overall wallet is from food and non-alcoholic drinks, costing £1,411 annually and equating to 14% of their annual spend. The second biggest emphasis of spending is on recreation and culture – single pensioners are spending an average of £1,337 a year.

Pensioners are burning up a tenth (9%) of their annual spend on utilities such as fuel, water supply and electricity – they now spend £918 a year, compared with £635 in 2000. Furthermore, although senior citizens receive discounted travel, the cost of transport and motoring costs (including petrol and vehicle maintenance) add up to an average annual bill of £1,217.

The cost of living has increased significantly since 2000. The biggest percentage rise on the cost of goods for pensioners has been on alcoholic drinks and tobacco which has increased by 57%. Food and non-alcoholic drinks comes second with a 45% hike.

Matt Trott, LV= Head of Annuities said: “Being a retiree in the UK doesn’t come cheap and people approaching retirement need to look at their retirement income options early, to ensure they get the most out of their savings to maintain a good quality of life in retirement.”

People approaching retirement will receive much greater support to get the best possible retirement income under a compulsory Code of Conduct launched by the Association of British Insurers (ABI).

ABI figures show that a third of people do not shop around for an annuity when they reach retirement and, as a result, may be missing out on a higher income, potentially losing thousands of pounds over the course of their retirement.

In addition, many customers who could qualify for an enhanced annuity, due to medical conditions or lifestyle choices, buy a conventional annuity, which may mean they miss out on a higher income during retirement.

The ABI’s Code of Conduct will ensure customers have access to information to enable them to make an informed decision about annuities appropriate to their needs and lifestyle in retirement. The Code continues the work of the ABI to improve customer engagement and contribute to the financial education of customers.

The Code of Conduct will require the ABI’s members to:

• Provide clear and consistent communications to ensure customers are able to make informed and proactive decisions about retirement income products, and are able to shop around for the most appropriate product.
• Prominently highlight enhanced annuities, and the much higher income they can potentially offer, and inform customers whether they offer these products, and how to find out who does.
• Clearly signpost customers to advice and support, both from regulated advisers and government-backed advice organisations.
• Establish transparency in the annuity market so that customers have a clear picture of how individual providers’ product offerings fit in with the wider market.

More than 10% of people who had planned to retire during 2012 are making alternative arrangements and putting off drawing their pension for the time being, according to the latest results from Prudential’s Class of 2012 research.

Of those deferring their retirement, a third claim they do not want to retire yet, while two thirds say they are putting it off because they can’t afford to retire as originally planned.

However, showing that giving up work before growing too old is still an aspiration for many, the average age of people planning to retire this year is 60 years old – a similar age to last year’s survey and seven months younger than in 2010.

Vince Smith-Hughes, Prudential’s retirement income expert, said: “One thing this year’s retirees have in common is actively making choices about when and how they will retire. Although many people think the idea of retiring as early as 60 is out-dated, the majority of this year’s retirees are defiantly sticking to that plan. It’s likely that many of these people will have accumulated benefits in final salary pension schemes that generate an acceptable income in retirement – perhaps signalling that the golden era of retirement for baby boomers isn’t over yet.

“It is, however, undeniable that there is a new retirement reality for a significant number of retirees. People are living longer, and for many, the very real prospect of a thirty year retirement is either unpalatable or unaffordable, hence the decision by many to continue to work. Retirement is also becoming a more opaque concept, with many people working part-time, either out of necessity or desire.

“To stand the best chance of having a comfortable retirement, which starts when you want it to, it’s important to seek professional financial advice on saving for a pension and on what post-work income options are available. Saving as much as you can as early as you can will help you to gain more control over your retirement."

The European Commission has published a White Paper on adequate, safe and sustainable pensions, which looks at how the EU and the Member States can work to tackle the major challenges that confront our pension systems.

It puts forward a range of initiatives to help create the right conditions so that those who are able can continue working - leading to a better balance between time in work and time in retirement; to ensure people who move to another country can keep their pension rights; to help people save more and ensure that pension promises are kept and people get what they expect in retirement.

The White Paper proposes, in particular, to:

• Create better opportunities for older workers by calling on the social partners to adapt work place and labour market practices and by using the European Social Fund to bring older workers into work. Enabling people to work longer is a major focus of the European Year 2012 for Active Ageing and Solidarity between Generations;
• Develop complementary private retirement schemes by encouraging social partners to develop such schemes and encouraging Member States to optimise tax and other incentives;
• Enhance the safety of supplementary pension schemes, including through a revision of the directive on Institutions for Occupational Retirement Provision (IORP) and better information for consumers;
• Make supplementary pensions compatible with mobility, through legislation protecting the pension rights of mobile workers and by promoting the establishment of pension tracking services across the EU. This can provide citizens with information about pension entitlements and projections of their income after retirement.
• Encourage Member States to promote longer working lives, by linking retirement age with life expectancy, restricting access to early retirement and closing the pension gap between men and women.
• Continue to monitor the adequacy, sustainability and safety of pensions and support pension reforms in the Member States.

The TUC has urged the government to freeze the lower thresholds in the auto-enrolment regime - keeping the bottom of the earnings band on which contributions have to be paid (£5,564) and the earnings level at which auto-enrolment is triggered (£7,475) - at their current levels.

The government is set to introduce a new earnings trigger for auto-enrolment, following their review, which recommended that workers should only be auto-enrolled once their earnings rose above the income tax threshold (£7,475). They would still pay contributions from the bottom of the earnings band.

However, the TUC argues that women would be the main losers from the new earnings trigger as the vast majority of workers with pay between the lower limit of the earnings band and the income tax threshold are women working part-time. The auto-enrolment trigger should therefore be frozen, says the TUC.

The TUC believes that linking auto-enrolment with the income tax threshold is particularly damaging given the coalition plans to increase it to £10,000.

A TUC analysis of official earnings data shows that the new earnings trigger could eventually stop around two million women from being auto-enrolled into pensions.

The Department for Work and Pensions (DWP) has published a package of regulations to help employers prepare for automatic enrolment into workplace pensions. 

This package, alongside the revised timetable for automatic enrolment published last week, is designed to make it easier for business to manage their new duties. With these regulations in place, the legislative framework underpinning these reforms is now almost complete.

The DWP has also published the Government’s response to the consultation published last summer on workplace pension reform regulations, and guidance on certifying pension schemes.

The consultation looked at arrangements to put into effect the remaining recommendations of the Making Automatic Enrolment Work Review on optional waiting periods and simplification of the certification process.

It also covered new statutory instruments on special occupations not included previously; seafarers, offshore workers and police not under a contract of employment.

A revised timetable for automatic enrolment was published on 25th January, giving employers clarity and certainty about their starting dates.

This followed the announcement, in November, that small firms would be given more time to prepare for automatic enrolment to help them out in exceptionally tough economic times.

The opportunity to benefit from employer contributions remains the single biggest reason for people to stay ‘auto-enrolled’ in new workplace pension schemes, according to latest research from the Association of British Insurers (ABI).

The ABI consumer survey suggests the introduction of auto-enrolment from October could not come fast enough for many as a way of bringing them out of the ‘savings stalemate’. Not missing out on employer pension contributions (47%) and on tax relief from contributions (14%) were the most popular reasons encouraging people to remain ‘opted-in’ to workplace schemes. This clearly shows that people see the value of their money being made to work harder by the extra top ups they will get from their employer and the Government.

Overall, more than half (53%) of people not already in a company pension scheme say they will remain ‘opted-in’ when their employers begin automatically enrolling them in eight months’ time, and this comes before any significant promotion of the new scheme.  With a further 30% of people still undecided, we could see even more remaining ‘opted-in’ and saving for their future. 

A similar scheme in New Zealand has seen the amount of workers saving for their pension more than double, with more than half of the country’s working population now enrolled. The UK could see even higher figures as its auto-enrolment arrangements will cover all eligible workers, rather than only those who are changing jobs or just starting work.

A revised timetable for when employers of all sizes must start enrolling their staff in a workplace pension has been set out by the Government.

Large employers, those with 250 or more employees, will not face any change in the date they are due to start enrolling their staff.

This follows the announcement in November that small businesses would be given more time to prepare for automatic enrolment to help them out in exceptionally tough economic times.

Minister for Pensions Steve Webb said:

“Automatic enrolment will begin on time this October, taking up to ten million people into pension saving, many for the first time ever, and all employers will be part of it.

"We have done all we can to ease any burden on business the reforms will bring and employers of all sizes now know the date they need to start enrolling their staff."

The timetable for employers to begin enrolling their staff starts with the largest firms first, followed by medium, then small companies.

Automatic enrolment will begin in October 2012. All existing firms will have enrolled their staff by April 2017, followed by all new employers by February 2018. This new timeline means that 70% of individuals will be automatically enrolled before the next general election.

The level of pension contributions will be phased in over time to help employers and individuals adjust. Full contributions will have to be paid from 1st October 2018.

A consultation and draft regulations with more detailed information will be published shortly.

People retiring in 2012 expect to live on an average annual income of £15,500 – over £1,000 a year (6%) less than those who retired in 2011. The figures come from Prudential’s Class of 2012 research which provides insights into the financial expectations of Britons planning to retire in the next twelve months.

The results of Prudential’s annual survey, first carried out in 2008, show that expected annual retirement incomes have dropped by more than 16% in the last five years. The Class of 2008 retirees looked forward to a total annual income, including private, company and State pensions, of approximately £18,600 – £3,100 a year more than those planning to retire this year.

In a sign of the ongoing financial challenges facing those due to retire in 2012, one in five will get by on an expected annual income of less than £10,000. Meanwhile, around the country there is a regional disparity of more than £5,000 in expected retirement income. Londoners have the highest average expected incomes of £17,900, while those in Yorkshire and Humberside have the lowest at £12,800.

Fewer than two in five (37%) of the Class of 2012 say that they have saved enough to secure a comfortable retirement.

Men are more optimistic about their retirement than women, with 45% of men confident they will be financially comfortable compared with 31% of women. However, nearly one in five (18%) of those planning to retire in 2012 have no idea of the level of income they will need in order to live comfortably.

Only 38% of working-age people - 11.6 million out of 30.4 million people - are saving into a private pension, the lowest level in the past ten years, new analysis by the Department for Work and Pensions (DWP) has revealed.

According to the DWP, this highlights exactly why automatic enrolment – introduced from October 2012 – is so critical.

The figures show a steady decline in pension saving between 1999/2000 and 2009/10, with the decrease being most dramatic among men and the under 40s.

While the overall number of people saving into a private pension fell from 46% in 1999/00 to 38% in 2009/10, pension saving among men fell from 52% to 39%. And among people aged between 20 and 39 years old pension provision fell from 43% to 31%.

The analysis also reveals a map of pension provision across the UK in 2009/10, with higher pension provision in the South East (43%), Scotland (42%), the South West (41%) and the East (41%), and lowest pension participation in Northern Ireland (33%), London (34%) and West Midlands (34%).

Women have more financial independence than ever, with increasing numbers in charge of household finances.

But though they may excel in budgeting for the family, new research shows women still lag behind when it comes to pensions.

A study by the Future Foundation for Friends Life has exposed a gulf in understanding across the genders with men more aware of how much their pension is currently worth, how much income they will have in retirement and whether they will be able to retire early.

The survey also showed men are more likely to realise they can change how much they save and where their pension is invested.

Experts said the study suggests that women face a "rougher ride" than men over coming years. It found that 59% of women were not saving for a pension, compared to just over half (52%) of men.

Nearly two-thirds of men (65%) said they knew how much their pensions were worth, compared to only half of women (50%), while more than two-thirds (68%) of men claimed to know what their retirement income would be compared to fewer than half (49%) of women.

When it came to where their pensions were invested, 48% of men were aware, compared to just 37% of women. And 59% of men said they understood they could alter contribution levels compared to only 39% of women.

Asked whether they knew whether their pension would allow them to retire early, nearly two thirds of men (63%) claimed to know compared to just 47% of women.

Proposed EU pension regulations would add significantly to business costs at a time when pension deficits are already holding back company performance, a new poll of business leaders has revealed.

The latest CBI / Towers Watson Pensions Survey, which covers firms employing 1.3m people, shows that the cost and uncertainty of managing defined benefit (DB) schemes - including ‘final salary’ - are holding back businesses’ activity and harming their ability to grow.

Two-thirds (69%) of business leaders are concerned about the prospect of the EU enforcing high deficit payments over a shorter period of time, under Solvency II-style rules being planned in Brussels to cover DB schemes.

At its worst, this could cost employers with DB liabilities hundreds of billions of pounds. It would divert money away from business investment in growth and jobs at a critical time, and harm prospects for investment in infrastructure. The CBI is urging the EU to reconsider its proposal.

The cost of running a defined benefit scheme – whether open or closed – remains a big concern to businesses. Close to three-quarters (71%) are worried about the level of funding, and firms fear that things will get worse, with over four-fifths (85%) of businesses concerned that market fluctuations could further harm funding levels.

Over two-thirds (69%) of companies say providing DB pensions is having a significant impact on their accounts, and close to half (45%) say they have less left to invest to grow the business, up from 38% in the 2009 survey.

Faced with rising pension costs, most employers have already taken action, be it closing their final salary scheme to new members, changing terms for existing members, or freezing the scheme altogether.

This is set to continue. Nearly a third (29%) of companies say their DB scheme is already closed to future accrual by existing members, and this is expected to rise to 43% in the next two years. Two thirds (64%) of employers who currently offer DB benefits to at least some employees are either planning to close their scheme completely or make changes to it within the next two years.