Posts Tagged ‘Budget 2014’

Christopher Shortt

On the run up to Pensions Freedom Day the focus has been on “how many members will transfer from a Defined Benefit (DB) Scheme to a Defined Contribution (DC) Scheme” or “how many members will take their full fund as a one off cash sum”.  That day has now come and gone and it’s time to start focusing on the future for DC members.

Prior to the 2014 budget, members of DC arrangements could take 25% of their pot tax free on retirement and use the remaining pot to buy an annuity.  The majority of members (up to 80%) did not consciously make any investment decisions and their funds were fully invested in the default fund.  Members simply left the default fund to do the rest and hope for the best when they reached retirement. Read more »

Alan Collins

This week, George Osborne kept up his pension reform theme and proposed the abolition of the so called “death-tax” on pension pots.

In doing so, he has further tipped the pension balance away from collectivism and defined income towards flexibility and individualism.

Summary of proposed changes

The changes only affect money purchase/defined contribution arrangements.  There are no changes proposed for final salary/defined benefit schemes.

Also, pension pots above the Lifetime Allowance will be subject to the same tax system as before.  That is, the excess above the Lifetime Allowance is taxed at 55% if taken as a lump sum (or 25% if taken as income, in which case income tax is levied in addition).

Currently, an “untouched” pension pot can be passed to a dependant free of tax if the deceased individual is under age 75.  If the deceased individual is 75 or over, the pot is subject to a 55% tax charge.

For pension pots that have already been accessed (i.e. the deceased has taken payment from the pot), the remaining pot is currently subject to a 55% tax charge irrespective of the age of the deceased (unless the beneficiary is a spouse/child less than 23, in which case there is no immediate tax charge, but (marginal rate) income tax is payable on any income received).

Come April 2015, the above will change radically:
•    Untouched pension pots will be passed on free of tax at all ages;
•    Pension pots that have been accessed will be passed on completely free of tax if the deceased is under 75; and
•    If the deceased is 75 or over, pension pots that have been accessed will be passed on with no immediate tax charge, but (marginal rate) income tax is payable on any income received.

What are the likely consequences?
Well, it is certainly trying to kill off collectivism by stacking all the cards in favour of an individual approach.  What are the chances of someone saying “Happy to join this group scheme and pass on my assets when I die to a bunch of random individuals instead of my wife and kids”?  Not likely, not likely at all.

We have had long debates in the office about the merits or otherwise of Collective Defined Contribution (CDC) schemes.  However, I suspect this may now be academic.  This is already a popular move and if it gets people more into the habit of pensions saving, then that in itself must be a good thing.  Like it or not, people will generally want to put themselves and their family first before they look to share their wealth for widely.  As such, employers are likely to keep away from CDC and focus on arrangements that will be more appreciated and valued by employees.

The further attractiveness of money purchase arrangements should also provide encouragement to employers seeking to manage their legacy defined benefit pension liabilities.  Employers should also review existing arrangements to make sure they are best aligned with the new pension freedoms.


Susan McFarlane

After three years of debating its future, and today’s “no” result, one thing is clear for Scotland.  The independence debate has reaffirmed that the issue of pensions is at the front and centre of UK politics.  People care deeply about pensions and are keen to ensure savings are encouraged and that the safety net of the state pension is protected.

We wait with interest for further details on the new powers that will transfer to the Scottish parliament. Even in light of the Scottish people deciding to stay in the United Kingdom, these new powers could still have a significant impact on the pensions landscape of Scotland – and the UK.  We encourage industry bodies and pensions professionals to continue to make positive contributions to future policy and debates.  This will help the gradual rebuilding of public confidence in the savings and pensions industry that has been started by the onset of automatic-enrolment and the changes announced in the 2014 budget.

2014 has been an exciting year for pensions and 2015 promises more of the same. “Freedoms”, but perhaps not in the way some in Scotland were hoping for…

Mike Spink

DC scheme sponsors and trustees can now proceed in earnest to review their schemes and ensure that they are fit for purpose from April 2015.

A number of organisations will have been waiting upon this week’s announcement before moving forward. This revolved around the action that the Treasury would take to mitigate reduced tax receipts as older workers used the new freedoms to potentially draw their salary more tax efficiently from next year. There was a very small risk that the new pension freedoms might have been curtailed given the scale of the Treasury’s potential tax losses, but George Osborne has confirmed that this issue will be addressed by placing new restrictions on the level of future contributions eligible for tax relief once maximum tax free cash has been taken.

DC sponsors and trustees will be pleased to hear that the Guidance Guarantee will be provided by independent organisations (The Pensions Advisory Service and the Money Advice Service are mentioned as ‘lead’ organisations) with the costs being funded by a levy paid by the Regulated adviser community. The Financial Conduct Authority has issued a Consultation around the elements of the Guarantee for which it will be responsible. As such, we await further details before a clear picture of the mechanics of the Guarantee becomes clear. Read more »

Susan McFarlane

Spence & Partners, the UK pensions actuaries and administration specialists, have said that today’s announcement on the continued permission for DB to DC transfers should be a catalyst for trustees and scheme sponsors to work more closely together.

Marian Elliott, Head of Trustee Advisory Services at Spence, commented: “Immediate actions for trustees will be in communicating the outcome of these announcements to members and liaising closely with the administrators on the processes that will be needed to comply with the guidance guarantee. Trustees should also be prepared to collaborate with employers on any de-risking exercises that take place and consideration should be given to whether scheme design is affected by the announcements.

“Trustees should also monitor what impact the announcements may make to the scheme’s risk profile, should a significant number of members opt to transfer out. Trustees should not react by overhauling their strategy, however more consideration should be given to liquidity issues and funding monitoring, so that trustees can react quicker to the need for strategic adjustments. Other considerations for schemes will be around whether assets are sufficient to meet the needs of the potential increase in transfer requests on the back of this announcement, as this may involve an agreed funding top up with the sponsor.”

Alan Collins, Head of Corporate Advisory Services, added: “The announcements today should be welcomed and treated by employers as a trigger for positively managing their scheme liabilities. With the prospect of DB members looking to move to the far more flexible defined contribution market, employers should review their on-going plans for the scheme and target available resources to fund transfer exercises. Defined benefit schemes continue to present a significant risk to employers, but with this announcement building on recent easements in The Pension Regulator’s approach to funding, employers can start to manage that risk more effectively.

“More individuals have been contacting administrators to request transfer quotations since the proposals were first announced in the budget, so it is important that everything is managed correctly by the employer and scheme from the outset. I welcome the requirement for mandatory indpendent advice on DB to DC transfers. The time is right for employers to work with their trustees to make sure that this advice is on tap for all members making decisions in relation to their scheme benefits.”

Kevin Burge

Spence & Partners latest blog for Pension Funds Online –

It appears to me that April kicks off a two to three month conference season for pensions. The great and the good gather at various events to discuss the world of pensions; what had gone well; what the latest ‘fad’ is and what will the future look like.

Now if anyone has ever been involved in organising a conference, or indeed speaking in one, then you will know that a good deal of planning takes place and presentations are normally prepared and well rehearsed. Read more »

Neil Copeland

Spence & Partners latest blog for Pension Funds Online –

“In a revolution, as in a novel, the most difficult part to invent is the end” – Alexis de Tocqueville

We’ve all been there. Stuck in a meeting, 30 minutes into an agenda item about IT spend, and even the most conscientious amongst us find our minds wandering. Let’s have a sneaky look at then, see what Osborne has done to the price of a pint. Bingo duty halved to 10%! Take that UKIP! Oh, that looks like an interesting link – “Chancellor’s Pension Bombshell”. He’s probably gone and slashed the LTA again. Click. “All tax restrictions on pensioners’ access to their pension pots to be removed, ending the requirement to buy an annuity.” Er OK. He can’t actually have done that. I’ll just move on to the BBC to get the real story. Expletive deleted, he has. Read more »

Mike Spink

This week’s surprise announcement from George Osborne is expected to provide a further boost to the DC pensions market whilst similarly re-energising design of long term income products.

First, there have been fears that Auto Enrolment opt-out rates will surge as the big social experiment moves downstream to the SME / micro employer market – with much of this concern based upon Joe Public believing that annuities represent poor value for money. This move could see more people taking the first steps to an improved retirement lifestyle as pensions shed their ‘inflexible’ tag.

The ‘at retirement’ market will see increased activity as firms consider innovative ways for individuals to optimise their retirement nest egg. Of interest will be how this market interacts with the Chancellor’s ‘guidance guarantee’.

And perhaps the loudest cheer of all: Read more »

Marian Elliott

Spence & Partners, the UK pensions actuaries and administration specialists believe that, in opening his budget briefcase, George Osborne has unlocked Pandora’s Box for occupational pension schemes and has thrown the governance of DB schemes into a state of flux.

Marian Elliott, Head of Trustee Advisory Services at Spence, commented: “The Government recognises the risk of members transferring out of DB schemes into DC schemes and is looking at a range of possible restrictive measures.  The impact of the announcements for DB schemes depends almost entirely on the outcome of the consultation regarding the restriction of transfers between DB and DC Schemes. Read more »

Alan Collins

Spence & Partners latest blog for Pension Funds Online –

This weekend’s newspapers have been littered with trailers and leaks relating to Wednesday’s budget.

With the onset of auto-enrolment for many medium and small employers, no one is expecting seismic changes to the pensions landscape. However, I would perhaps give Osborne one or two suggestions.

Firstly, a ‘do’: I would ask Osborne to consider giving ongoing occupational schemes greater flexibility around the payment of lump sum benefits to extinguish small liabilities for those aged 55 and over. This could easily be done by extending the rules on ‘winding-up lump sums’ to ongoing schemes. Crucially, this would allow members’ benefits under other pension schemes to be ignored. Read more »

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