Pensions - Articles - Groundbreaking reforms promise greater ‘pensions certainty’

 The next stage of the government’s ground-breaking pension reforms received their Second Reading in Parliament yesterday (Tuesday 2 September 2014), giving the House of Commons its first chance to debate the plans.

 The Pension Schemes Bill will enable the development of new breeds of Defined Ambition and collective pension schemes – giving more workers the opportunity to save into plans which offer more guaranteed retirement incomes.

 At a time when traditional defined benefit pensions have been in decline for decades, the legislation aims to bring greater certainty back to pension saving by opening up new types of schemes which remain affordable to employers but offer much better outcomes for savers.

 Minister for Pensions Steve Webb said:

 "Defined benefit pension schemes have been in decline since the 1960s but I’m not prepared to accept the idea that having some certainty about your future pension income should be consigned to history.

 We may live in an increasingly uncertain world, but pensions shouldn’t be part of that uncertainty.

 People deserve to know the sort of income they can expect in retirement and this legislation will make that a reality for more people.

 The new Bill proposes the introduction of a new ‘shared risk’ category of pensions to encourage greater innovation by employers and deliver pensions which better meet the needs of business and individuals. In particular, it will enable the introduction of defined ambition and collective benefit pension schemes."

 In addition, the Bill promises to:

 - give people much greater flexibility on how and when they access their savings – following the major reforms announced in the Budget
 - introduce a ‘guidance guarantee’ where everyone with a defined contribution pension arrangement is offered free, impartial guidance so they are clear on the range of options available to them at retirement
 - put in place additional safeguards to protect individuals and pensions schemes when people consider transferring out of a defined benefit scheme

 The Bill – combined with pension reforms already delivered by the government over the past 4 years – will help to create a new private pensions market with the flexibility to respond to consumers’ needs and provide sustainable pensions for millions of savers.

 Financial Secretary to the Treasury, David Gauke said:

 "This government believes people should have greater freedom and choice over how they access their pension savings. Our major reforms will ensure much more flexibility for those reaching retirement age while providing safeguards, for those transferring out of a defined benefit scheme.

 The proposals contained in this Bill will also encourage greater innovation in the pensions market, leading to new products that are tailored to individual needs as well as more sustainable pensions for millions of savers.”

 Reforms and successes since 2010
 The Pension Schemes Bill builds on the government’s major pension reforms and successes since 2010.

 Triple lock
 Protection of the basic State Pension means the rate rises by the highest of growth in earnings, prices or 2.5%. This year the basic State Pension is forecast to be a higher share of average earnings than at any time since 1992.

 Automatic enrolment
 More than 4 million people have now been automatically enrolled into a workplace pension – an increase of over 1 million this year.

 Charge cap
 In April 2015, a charge cap on default funds in defined contribution pension schemes will be introduced to ensure workers auto-enrolled into a workplace pension will be able to save with confidence.

 New State Pension
 The new State Pension, to be introduced in April 2016, will be set above basic means-tested support and provide clarity about what individuals can expect from the state as well as benefiting many women, self-employed people and the low-paid.

 This Parliament will also see the Taxation of Pensions Bill to legislate for the required tax changes for pension freedoms introduced in the Budget.

 Background
 Read full details of The Pensions Schemes Bill

 Draft clauses for the Taxation of Pensions Bill were published on 6 August

 Main facts
 Membership of private sector defined benefit schemes peaked in 1967 at 8.1 million – and has since declined to around 1.7 million members in 2012.

 Membership of defined contribution schemes has grown – from 2.2 million in 1997 to 4.2 million today.

 Membership in defined contribution (DC) schemes increased by 15% in 2013 alone.

 Collective pension schemes currently exist in the Netherlands, Denmark, Sweden, and New Brunswick Province, Canada. There are over 400 collective defined contribution (CDC) schemes operating in the Netherlands.

 A study by Aon Hewitt concluded that their CDC model would have outperformed the average DC scheme by 25% between the years 1955 and 2011.

 The cost of buying an annuity in the UK increased by 29% from 2009 to 2012.

 Around 7 million members of private sector defined benefit schemes will have access to the new flexibilities from April 2015.