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Workplace Pension Blog

Useful input from Royal London about Workplace Pension schemes.  Further clarification is expected shortly from The Pension Regulator (TPR).

It’s worth saying that this is our current understanding of the position for employers, we are expecting TPR to make an announcement about the ongoing responsibility for employers soon.

Question Answer
Can employers put their scheme on a contribution holiday?

 

Although TPR have not given a definitive view as to whether employers can apply a contribution holiday to their scheme, we would encourage employers if they can, to continue making contributions in the normal way.

 

If employers are concerned about whether they can meet their ongoing duties, we suggest they speak to TPR.

 

Should employers continue making pension contributions if members are off sick? Yes.  Employers will need to continue deducting contributions from the members’ salaries.  Statutory sick pay is part of the qualifying earning rules for automatic enrolment.
What should employers do if any members want to stop paying into their pension?

 

 

 

Members can stop/restart their contributions at any time.

 

Automatic enrolment rules also give employers the option of stopping their contributions.  However depending on the schemes rules for occupational pensions schemes, or contracts of employment, there may be a legal obligation for employers to continue paying them.

 

 

What should employers do if any members stop paying into their pension, but they want to continue contributions?

 

If the member’s contribution stops, employers will need to stop deducting contributions from their salary.

 

And similar to above, employers will need to check to see if there are any conditions that apply to minimum/matching contribution amounts.  And then ensure they update their schedules to reflect the new contribution

Do employers still need to make pension contributions if employees’ take unpaid leave? If the employer is not paying any salaries, then they

wouldn’t need to make any pension contributions.

 

 

If employers need to reduce salaries, do they still need to make the pension contributions? If the salary has been reduced, any pension contributions the employer makes, should be based upon the revised salary.  It’s important employers check that any reduced pension contributions are still in line with any specific arrangements they have with employees.

 

Can employers change the certification

basis of their scheme?

 

 

If the scheme’s contribution basis meets the statutory minimums then yes they can change the scheme’s basis.

 

If they decide to make the change, they’ll need to let us know as well as keep a record of this in case TPR ask for evidence and they’ll also need to let their employees.

 

If the employers are taking on any new employees, should they still enrol them into the scheme?

 

Yes.  Until TPR provide any other advice around new joiners, employers should continue to enrol any new employees into the scheme in the normal way.

 

 

If the current situation means employers can’t make their pension contributions on time what are their options?

 

We appreciate that current circumstances will be challenging for employers, however until TPR tell us otherwise, employers should try to make their pension contributions as soon as they can.

 

If employers are concerned about whether they can meet their ongoing duties, we suggest they speak to TPR.

What information is available for scheme trustees? To help trustees meet their ongoing responsibilities, TPR have issued a guidance note

Thanks to Royal London for this Q & A sheet.  Handy guidance for employers.

 

Steve Speed

26/03/2020

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Transition into Retirement

One of the key areas we advise on is retirement planning, preparing for retirement, retiring and living your retirement.  As we could now live for 30 years or more in retirement it’s important to get it right.

There’s a good quote that says ‘Retirement is about waking up with enough purpose and going to sleep with enough money’.

For the transition into retirement to be successful you need to have both ‘the emotional capacity to retire and the financial capacity’.

A good transition into retirement for many is to semi-retire for a few years first.  This allows you the time to build up other interests outside of work and perhaps a new network of friends.

You need to have not just the wealth to retire but also the capacity to handle the emotional or psychological impact of leaving the world of work.

In general, people need to start thinking earlier about what comes next.  It’s useful to have these discussions years before you retire.  Understanding what you might do in retirement should help you to plan to have the means to retire (to do what you want).

Be flexible with your retirement, it’s very likely that you will change direction and you will have to adapt your original plans and keep adapting them.  Your retirement plan has to be pliable.

Quite often people either carry on working or return to work after a few months off.  This can be a retirement option for those that have the means to fully retire.  I have also had clients who have been pretty much full time voluntary workers.  The most important outcome is that you are happy with your retirement.

Summary

Think about your retirement, what do you want to do?  How will you spend your time?  Have you factored in what your partner and family want or what you’d like to do for them in retirement?

What will it cost to live the life you want to live?

Will your new life be engaging and intellectually stimulating?  Plan with your partner if you have one.

As mentioned earlier you need both the financial and emotional capacity to retire.

 

Steve Speed

09/03/2020

 

Thought provocation from Nucleus Illuminate 06/03/2020

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State Pensions – What you need to understand well before you retire

When the new State Pension was introduced for those reaching State Pension age on or after 6th April 2016, the intention was to simplify the old system which was a State Pension system with multiple different aspects (i.e. the basic state pension, state earnings-related pension (SERPS), the second state pension (S2P) and the graduated retirement benefit).

The new State Pension is a single benefit paid to individuals who have made (or been credited with) 35 years National Insurance contributions.

Unlike the old system it replaced, the new pension is based solely on the contributions of the individual, with no extra amounts awarded based on contributions made by a spouse or civil partner and no inheriting of rights after the death of a spouse or civil partner.

This loss of the death benefits is just one of the major issues with the new system. Unfortunately, this is not widely known by the general public. Government should publicise this issue.

Apart from the obvious issues regarding longevity and possible legislation changes to the State Pension (including the possible loss of the ‘triple lock’*), one of the biggest issues is incorrect State Pension forecasts.

We wrote about this in a blog back in February 2017, https://www.pandbifa.co.uk/state-pension-forecast-wrong/.

Last year the former pensions minister Steve Webb (in partnership with the ‘This is Money’ website investigated this further and found that in some cases, new forecasts were more than £1,000 a year higher than had previously been expected. These cases were raised with DWP who initially said that these were isolated errors which had now been corrected.

However, there still seems to be issues, particularly around people who were members of Defined Benefit pension schemes that had been contracted out.

Commenting on the findings at the time, Steve Webb (who was also the Director of Policy at Royal London at the time) said: “People are increasingly encouraged to use online services to help plan their retirement, and the new pensions dashboard will rely heavily on such data. It is therefore very worrying that hundreds of thousands of people may have received incorrect state pension forecasts and in some cases will have taken decisions about their retirement plans on the basis of incorrect information. Now that the Government is aware of the scale of the problem, it must put an urgent stop to the issuing of incorrect statements. Individuals need to have confidence that the information they receive from the government is accurate and should not have to live with the uncertainty that a statement they have already received may be seriously incorrect”.

If you haven’t already, please visit https://www.gov.uk/check-state-pension to request a State Pension Forecast or call the Future Pension Centre helpline on 0800 731 0175 and request a paper copy.

We will issue new updates on the future of State Pensions regularly and we take this into account at each of our clients annual reviews.

Comment

In general terms the levelling out of the State Pension in April 2016 was beneficial to a lot of low earners and carers. This is good news.

However, for those of us who have lost significant death benefits from the State Pension, the spouse’s pension element from April 2016, advice should be taken to ensure that our long term partners have enough pension provision (or replacement for it) as soon as possible.

Don’t leave it too late, until just before you draw your State Pension. This could be a mistake that you can’t rectify at this stage.

If you wish to discuss any aspect of the State Pension or retirement planning, please contact us at enquiries@pandbifa.co.uk or call us on 0151 546 1969.

Andrew Lloyd 02/03/2020

 

*The triple lock is the method under which the State Pension increases each year. This is in line with whichever is the highest of consumer price inflation (CPI), average earnings growth or 2.5%.

Data Source: Royal London Press Release – ‘Minister forced to admit ‘significant’ problems as a third of a million incorrect state pension forecasts issued’ – June 2019

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It’s a confidence thing – potential pension legislation changes

We have heard a lot in the media recently about potential pension legislation changes.  The removal of higher and additional rate income tax relief on pension contributions, lower levels of tax-free cash to be drawn from pensions etc.

Why would any government do this?  To raise income or save spending as much, to reduce or limit state spend.  For short term political gain.  We need long-term cross-party policy on pensions, messing with pensions for a quick political win is a mistake.

Pensions can be funded for 30, 40 or 50 years, we need stable pension legislation for the very long term.  You can’t fund pensions on one basis and then somebody moves the goalposts just before you want to retire or draw your pension benefits.

The state (both major political parties) want us to fund our own pensions to take the onus of State Pension provision.  Auto Enrolment introduced in 2012 was another step in the right direction as far as the State is concerned, trying to get everybody to have a pension.

If you keep changing pension legislation the key issue for me is that you will erode confidence in pensions and this in turn would lead to lower rates of pension funding.  You need a lot more than Auto Enrolment levels of pension funding to get a reasonable level of pension income in retirement.

If you get the opportunity please ask your local MP to leave your pension alone, we need to maintain the status quo, or we will erode confidence in the pension system in the UK – this will probably lead to people falling back on the State.  Our politicians need to understand this.

We need long term plans for pensions with a cross party consensus, they are not a short-term issue or piggy bank to raid.

 

Steve Speed

24/02/2020

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Pensions – UK Data July 2019

I’ve cut and pasted the following data from The Money Charity’s report received on 24/07/2019:

According to The Pensions Regulator’s Compliance Report, at least 10.11 million employees had joined a pension scheme under auto-enrolment by the end of June 2019, making a total of 22.12 million members of pensions schemes, but leaving 9.4 million employees unenrolled, out of the total declared workforce of 31.55 million.

According to the Family Resources Survey, 49% of working age adults actively participated in a pension in 2017-18, up 4% on the previous year. This was 71% for employees and 16% for the self-employed. The Annual Survey of Hours and Earnings reports that in 2018, 19.6% of private sector employees received an employer contribution to their workplace pension of 8% or more, whereas 94.8% of public sector employees received a contribution of 12% or more.

36.4% of employees with a pension were in an occupational Defined Benefit scheme in 2018, according to the Office for National Statistics, while 34.0% were in an occupational Defined Contribution scheme.

In August 2018, there were 13 million claimants of State Pension, a fall of 110,000 on August 2017. Of these, 960,000 were receiving the new State Pension (nSP) introduced in April 2016.

 

My thoughts on the above data:

It is good news that more people are in pensions, Auto Enrolment has helped with this.  However, I have a few real concerns with the data above.  They are as follows:

  • Those ‘Auto Enrolled’ into a Workplace Pension but not receiving advice could think that at standard Auto Enrolment contribution levels, the legislative basis, they have a pension for their retirement. A pension funded on the standard ‘minimum legislative’ basis will not provide much of a pension fund for your retirement
  • The self employed are still not getting the message. They need to be in pensions too, perhaps legislation in this area?
  • We need changes to Auto Enrolment on the following counts:

 

  1. Lower age, enrolled from age 18
  2. All of your salary should count for the contribution basis. Currently we have a lower and upper threshold and you don’t have to contribute against full salary (in generic terms)
  3. Higher level of contributions

Although the State recognise the need for changes to 1 & 2 above they want to defer until c 2025 as they have no more money to spend on pension tax relief.

 

  • Those in a Public Sector Defined Benefit pension scheme will be doing well. Politicians enjoy good (very good) pension provision
  • We seem to have quite a large proportion of the population still not in a pension. These might be people with 2 or 3 low paid jobs who are not hitting the lower threshold?  They could be people who have opted out under financial pressure or they could be people outside of the criteria.  Whoever they are everybody needs a pension unless you are very wealthy.

One of the key issues and a missing piece of the jigsaw is financial education.  We should start this at school and continue through college, university and in the workplace.

If we can catch people at a young age and spell out the benefits of good financial literacy and planning I believe we can make a real difference.

 

 

Steve Speed

24/07/2019

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Don’t let a scammer enjoy your retirement – beware of fraudsters

There is seldom a week goes by without hearing that a large, well-known firm has been hit by hackers; the latest one was British Airways. You have probably seen the TV adverts warning of the dangers of retirement plans being ruined by fraudsters.

The Financial Conduct Authority (FCA), our industry regulator, recently published an online article designed to highlight the dangers and suggest how to protect yourself from fraudsters. We’ve lifted the advice from their article.

 

Four simple steps to protect yourself from pension scams

Reject unexpected offers

If you’re contacted out of the blue about your pension, chances are it’s high risk or a scam. Be wary of free pension review offers. A free offer out of the blue from a company you have not dealt with before is probably a scam. Fortunately, research shows that 95% of unexpected pension offers are rejected.

Check who you’re dealing with

Check the Financial Services Register (www.register.fca.org.uk) to make sure that anyone offering you advice or other financial services is FCA-authorised.

If you don’t use an FCA-authorised firm, you also won’t have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme. So you’re unlikely to get your money back if things go wrong. If the firm is on the FCA Register, you should call the Consumer Helpline on 0800 111 6768 to check the firm is permitted to give pension advice.

Beware of fraudsters pretending to be from a firm authorised by the FCA, as it could be what we call a ‘clone firm’. Use the contact details provided on the FCA Register, not the details they give you.

Don’t be rushed or pressured.

Take your time to make all the checks you need – even if this means turning down an “amazing deal”.

Be wary of promised returns that sound too good to be true and don’t be rushed or pressured into making a decision.

Get impartial information and advice

The Pensions Advisory Service (www.thepensionsadvisoryservice.org.uk) – Provides free independent and impartial information and guidance.

Pension Wise (www.pensionwise.gov.uk) – If you’re over 50 and have a defined contribution (DC) pension, Pension Wise offers pre-booked appointments to talk through your retirement options.

Financial advisers – It’s important you make the best decision for your own personal circumstances, so you should seriously consider using the services of a financial adviser. If you do opt for an adviser, be sure to use one that is regulated by the FCA and never take investment advice from the company that contacted you or an adviser they suggest, as this may be part of the scam.

 

To read the full article, go to www.fca.org.uk/scamsmart/how-avoid-pension-scams.

If you have any doubts about someone contacting you about your finances, get in touch with us to discuss.

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The New State Pension and Age

The New State Pension and Age

The new legislation brought in by the government from 6th April 2016 introduced a differential of the state pension in England. The pension plan provides a higher rate of up to £155.65 per week to those who are eligible, supporting a more comfortable lifestyle. The new legislation is a confusing array of eligibility criteria on who can gain the State Pension, who has the old pension plan and who is not eligible at all. Read more