Over the last few years there have been some monumental changes in pensions policy in the UK. Throughout 2016 we have seen a continuation of these policies and the beginning of a totally new pensions landscape starting to emerge. Not all of the changes have been unqualified successes. |
The three flagship policies of a new state pension, auto-enrolment and pension freedoms are still essentially work in progress and have yet to be fully tested. There have been both highs and lows in these and other areas as the policy framework becomes more fully developed. Malcolm McLean, senior consultant at Barnett Waddingham, highlights the six events which have dominated the domestic pensions calendar in 2016:
State pension reform “Government communications to date have left a lot to be desired and much more effort is needed to explain the workings of the new pension to the public at large.”
An end to contracting out
This could, however, be another nail in the coffin of DB schemes in the private sector.
State pension ages “It is not yet clear how this is all going to be resolved, but over the next few years some big political decisions will need to be taken on both state pension ages and the future of the triple-lock.
Auto-enrolment “By the end of 2016, more than 500,000 employers will have gone through auto-enrolment which will lead to millions of workers being enrolled in workplace pensions, some for the very first time in their lives. “Without doubt, auto-enrolment has been a great success so far. Opt-outs have been relatively few (less than 10%), however worries remain about the low level of the minimum pension contributions required (8% of band earnings) and the inadequate pension outcomes these are likely to produce. When and how to address this is now becoming one of the burning questions of the day.”
Tax changes “A ridiculously complicated annual allowance taper for those earning six figure salaries will also potentially reduce maximum contributions eligible for tax relief to £10,000. In addition to this, in the Autumn Statement it was announced that the current Money Purchase Annual Allowance of £10,000 (for people who have already withdrawn funds from their pension pot) will be reduced to £4.000 from next April. “Although the Treasury is now saying there are no current plans to alter existing pension tax reliefs it beggars belief that there will not be further changes at some point in the near future, possibly moving to a flat-rate of tax relief and further tinkering with the Lifetime and Annual Allowances.”
Pension freedom “Many people have opted for either cash or income drawdown arrangements in lieu of purchasing an annuity whilst sales of the latter have reduced, however not dropped away altogether. The industry must try to make the system work in the best interest of pension savers as a whole. Advice and guidance services clearly have an increasingly important role to play from hereon in.
“It is important to note that following the introduction of the freedoms there has been a noticeable increase in pension scams which have resulted in a number of vulnerable pensioners being swindled out of their lifetime savings. The Government has recently announced its intention to impose a ban on cold calls to try to put a stop to this pernicious type of fraud.” |
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