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November 2014

Good day to you, Dear Reader (yes, I know there’s one of you out there!). After a short hiatus, I have returned to the keyboard to write a review of recent developments in the world of pensions. Reports of my writer’s block have been greatly exaggerated!

As George Osborne reveals he spent his summer holiday in a campervan in the Peak District, it may explain why Government intervention has, recently, been noticeable by its absence. Rumours that George informed our esteemed Pensions Minister that he would be vacationing, in a caravan in Rhyl, for two weeks are unsubstantiated…but may explain the Prof’s absence in the press. Not that the Treasury are calling the shots, of course…

I can see clearly now…
Talking of HMT, it was announced yesterday that the pensions of ‘army generals and top Whitehall mandarins’ would be classed, for the first time, as welfare spending. Naturally, this doesn’t make the problem go away – it merely provides transparency. Apparently, HMRC is writing to millions of households, ‘with detailed figures on how the government spends their income tax and National Insurance contribution’. A riveting read, I’m sure. Here’s hoping they recycle the missives, rather than hurl them straight in their general waste, so they don’t add to the cost of refuse disposal.

I want to retire, no longer required…
More happy news regarding the state pension age. The headlines state that a ‘worst case scenario’ would see today’s 20-year olds working until they are 75. We are expecting the SPA to be increased to 69 by 2049, although this could well be brought forward. That is then seen as a slippery slope to a 70+ retirement age, some 15 years later. Come 2064 I’d be highly surprised if the state pension still exists – if a week is a long time in politics, 50 years is as predictable as a Z-list celebrity’s Facebook relationship status.

Need guidance? Don’t ask MA…
Back in October we saw the breaking news that the Money Advice Service (MAS or ‘MA’ to her, considerably richer, advertising agency) would not be asked to help provide the ‘guidance guarantee’, put in place to help retirees liberate their pensions legally, boosting the coffers of HMT, rather than through one of those scorpion-related services, we have heard so much about.(Ed. That makes me think – surely we should get some of the ‘pensions liberation’ marketing bods on-side, because their campaigns seem to be a hell of a lot more effective that anything that falls out of the Civil Service and related NDPBs!)

Instead, Citizens Advice will provide face-to-face guidance (not advice – nobody here is providing advice, remember), alongside The Pensions Advisory Service’s telephone based guidance (not advice, don’t let the name fool you). We are yet to see any meaningful direction around how this will work in practice, but a very honest comment from, I infer, a Citizens Advice worker doesn’t fill me with confidence.

“We are not licensed or qualified or allowed to give financial advice eg how to invest money. We can signpost clients to the Telephone Pensions Advisory Service, or give them a list of local independent financial advisers (who will charge a fee) but that is all we are allowed to do.”.

You can lead a horse to water, but it seems you can only lead a retiree to a fee-charging IFA…much work to be done, methinks.

And so, I leave you to Guy Fawkes’s night on that cheerful note. Fawkes, famously said to be the “last person to enter Parliament with honest intentions”. I make no comment in that regard, although I do find it curious that we still ‘celebrate’ the chap over 400 years later.

Category : A month in the life of pensions — admin @ 1:05 pm November 28, 2014

August 2014

Scribing this immediately after, what we are told was, the coldest August Bank Holiday on record, is perfect timing. Afterall, are we not constantly informed that pensions are full of ‘doom and gloom’? That said, I shall endeavour to find some silver linings in those clouds…

Cash and carry
HMRC has published a ‘policy impact document’ that claims, of the c. 400,000 retirees that will initially have the chance to access their pensions, around 130,000 would choose to do so. I do love the way these government departments work – implement the policy, then look at what impact it will have. Genius.

As we know the new rules, which allow 25% of a DC fund to be taken tax-free and the rest subject to income tax, kick in from April 2015. There are concerns that the desire to take money for short term gains e.g. holidays / cars / home improvements / lion taming courses will not only see those pension pots depleted considerably by tax, but leave the pensioner in penury later in their retirement.

I have been called cynical for suggesting that the move was for two reasons. One, to ‘buy’ the grey vote and two, to increase tax takings. To give you an idea of the financial rewards for HMRC, it is estimated that the tax revenue from this move will rise from £320m in 2015-16 to an eye-watering £1.2bn in 2018-19…cynical, moi?

Oh Brothers, where art thou?
Following the collapse of Lehman Brothers and a six-year pursuit by the Pensions Regulator, it was announced this month that the members would receive full benefits due to a settlement that sees the £184m buy-out of scheme liabilities.

Of course, this is fantastic news for nearly 2,500 members of the scheme, as well as TPR itself. The cheers from Brighton, however, would have been drowned out by those from East Croydon as the deal also protects the PPF from taking on the deficit.

The case was not without repercussions, a short-lived one being the ruling that a Financial Support Direction (FSD) issued by TPR had ‘super priority’ – meaning that it ranked ahead of other creditors including the Administrator / Liquidator – tell me, which Insolvency Practitioner would take on a case if they were not going to receive payment? Thankfully, that wrinkle in legislation was ironed out by the Supreme Court and common sense reigned in the land.

Charge of the investment brigade
A recent report tested providers of investment products for charges, on portfolios between £5,000 and £1m, to see if investors are being charged too much. Looking at SIPPs, which are likely to feature more heavily when compulsory annuities are abolished, show running costs between £60 and £120 for a £20k investment or between £196 and £1,125 for a £250k fund. We have always known in the industry that it pays to shop around, but getting that message over to the ‘person on the Clapham omnibus’ is not an easy task.

A brief look out of the window shows that the clouds have not dispersed and opening it tells me that the temperature has not increased. Looking more closely though, if I squint and wrinkle my nose, I do believe I can spy something glistening…

Category : A month in the life of pensions — admin @ 1:03 pm

July 2014

I write this month’s blog after a weekend of sunshine, humidity and some cracking thunderstorms that the forecasters have been struggling to predict with any certainty. Uncertainty…what a wonderful segue into pensions…

HMT hands GG to TPAS and MAS – OMG!

Her Majesty’s Treasury (HMT) has confirmed today (21 July) that the ‘Guidance Guarantee’ for retirees, they trailed in the Budget, will be carried out by The Pensions Advisory Service (TPAS) and the Money Advice Service (MAS). HMT believes that by handing the responsibility to independent bodies, rather than the providers themselves, consumers will ‘trust’ the guidance. The government has stated that it will continue to work with the likes of Citizens Advice and Age UK, to ensure they remain ‘inside the tent’.

So far, HMT has received approval for £10m for this service, seeking to double that amount in due course to fulfil the £20m contribution promised when the announcement was made. At the time of writing, I haven’t seen what the estimated costs (initial and ongoing) are for TPAS / MAS to fulfil their new obligations, nor whether there is a chance of the £20m war chest to be boosted, should the need arise. I’m not a betting man, although a small wager on provision of the guidance guarantee exceeding £20m is looking rather appealing!

CoA upholds CG for BTPS – ATM

The Court of Appeal (CoA) has ruled that the government (i.e. taxpayer – remember, there isn’t a bundle of cash, sitting in escrow, waiting to be handed out if the need arises) remains responsible for the full cost of benefits for the British Telecom Pension Scheme (BTPS), should there be an insolvency event. Cue much wailing and gnashing of teeth at the department for Business, Innovation and Skills (BIS) who hold the cheque book in respect of the Crown Guarantee (CG) that was provided at the time British Telecom (BT) was privatised, back in 1984.

The government believed that they had provided a guarantee for those pensions up until the point of privatisation, with all post-1984 pensions for the employer to stump up. The Trustees of the Scheme, along with the employer, are keen to see the guarantee extended to all pensions – quelle surprise.

This case has been rumbling along for some time now, with the previous decision to uphold the CG made in the High Court in 2010. The difference between the two judgements is on how the liability is calculated – the High Court stated that buyout should be the measure, whereas the CoA has removed this highest of measures, in favour of the company’s obligation to pay deficit contributions, as per the BTPS trust deed and rules.

Estimates for the cost of the guarantee range from around £8bn to anything up to £22bn, although the latter figure has been, apparently, dismissed by the BTPS trustees.

The government’s next step is to appeal the judgement to the Supreme Court, should they chose to do so. Again, I am not one prone to gambling, however a modest wager on an appeal being lodged looks better value than my tip in The Open!

Talking of The Open and Rory McIlroy’s triumphant win, according to Forbes his earnings for the year to June 2014 were $24.3m…now there’s a chap who is unlikely to need to call on the Guidance Guarantee when he decides it is time to retire!

Category : A month in the life of pensions — admin @ 1:00 pm

June 2014

As we creep into, what we laughingly call, Summer I also find that we have hit peak ‘hay-fever season’. I, along with millions of others, are suffering itchy eyes, sneezing and myriad different symptoms as they carry out their pension duties. Speaking of pension duties, here are a few highlights from the last month…

Retire early, retire poorer

We are told that government research shows those who retire 10 years short of their ‘retirement age’ (which will probably be in the region of 90, by the time I get to call it a day!) could lose more than a third of their pension. Apparently, it may also affect someone’s mental health, through “boredom, loneliness and poverty”.

The comedian Dave Allen once said “We spend our lives on the run: we get up by the clock, eat and sleep by the clock, get up again, go to work – and then we retire. And what do they give us? A clock.”…if the government research is correct, the clock may be the only thing to keep us company in penury.

Comfort for £15,000

The National Employment Savings Trust (NEST) has stated that people planning their retirement should aim for at least £15,000 per annum to ‘feel comfortable and more financially secure’. It is claimed that 43% of those in the £15-£20k category felt financially comfortable, only 24% did so when receiving under the magic £15k mark.

To put saving this amount into perspective, we are given some handy figures for a 30 year old, saving until they are 68. For instance, cutting one takeaway coffee out per week, could generate £11,800. Ditching a weekend takeaway will bring around £50,900 and taking a packed lunch to work a whopping £63,700 – assuming one doesn’t pack beluga caviar and blinis.

It was noted, however, that there is no ‘happiness benefit’ above £40,000 a year…I am sure the majority of the Nation will breathe a collective sigh of relief…

Three more years

At the end of May, the Pension Protection Fund (PPF) issued its consultation on their Levy for the next three years. This encompasses the move from Dun & Bradstreet (D&B) to Experian, with a ‘PPF-specific model’ designed to help them predict insolvency risk more accurately, providing bespoke insolvency risk scores along the way.

It has been stressed that the new system is not designed to tinker with the aggregate levy raised, more to help redistribute it, with higher-risk schemes/employers paying more.

There is a greater focus on the figures, rather than the background information, to provide a more reliable picture of the chance an employer may fail. With the old system, a broadly irrelevant event e.g. an extra Director joining the Board, could have impacted on the levy calculation. Hopefully, this revised process will successfully avoid these anomalies.

As with any change, there will be some ‘winners’ and some ‘losers’, with levy payments falling or rising depending on risk. The new scores will not be used until October 2014, so that does give trustees the opportunity to investigate what will happen to their scheme.

I apologise if there have been any typos in this month’s missive, it isn’t easy to type when sneezing and rubbing my eyes…now, where did I put the Claritin?!

Category : A month in the life of pensions — admin @ 12:09 pm June 17, 2014

May 2014

I’m pulling this month’s missive together, immediately after the second May Bank Holiday. I often wonder if the extra day away from the desk is worth it, given the additional work pre and post the Monday off!

Time to Act

I will start with what is now known as the Pensions Act 2014 (PA14), which received Royal Assent on 14 May. Possibly the largest element is the introduction of the single-tier state pension, which has attracted considerable publicity. Because of that, I thought I would look at a couple of the lesser known parts.

The Pensions Regulator (TPR) has, finally, been given the power to prohibit or suspend corporate trustees, where one or more of the directors have been prohibited by TPR previously (PA14 s46). I always found it quite strange that an individual could be prohibited, but then allowed to set up their own company employing others to do the very thing they have been banned from doing.

Another strange quirk of legislation, which has now been addressed, is in relation to the escalating penalty notices introduced as part of the Pensions Act 2008 (PA08). Up until now, it was not clear whether TPR could issue an escalating penalty notice, when a s72 request had not been complied with – be that as part of the Employer Compliance Regime (the intention) or  when discharging its duties under the 2004 Act (the implication). Clarity comes in PA14, stating that the penalties only apply in relation to the PA08 compliance regime.

Personal deficit

It was reported recently that Auto-Enrolment may be less than suitable for oder workers, that have considerable debts e.g. mortgage / credit cards. It was claimed by the Pensions Policy Institute that people in the 50 to 64 age group should be wary when considering whether to remain enrolled. Presently, c. 15% of workers who aged 50+ opt out of the scheme, which is higher than any other age group. The PPI report said “There is a concern that some people for whom automatic enrolment is not suitable…because they have other priorities, such as paying down debt, will not opt out.”.

No such thing as a free review?

The Financial Conduct Authority (FCA), the other regulator of pensions in the UK, has spoken to to highlight the dangers of ‘free pension reviews’. Enterprising, if shady, cold callers are piggy-backing the recent Budget’s ‘guidance for all’ claim, to help relieve retirees of their pension savings. The FCA said “most of the companies offering this ‘service’ are not authorised by us, and we’re concerned that the reviews often end with pension pots placed in higher risk, unregulated investments”…like the 16.30 at Doncaster, perhaps?

In short, if anyone reading this is called, out of the blue, by someone purporting to provide a ‘free pension review’, the FCA advise that the call is terminated immediately. Personally, I will try to obtain as many details from them as possible and shop them to the relevant authorities. ‘Pension’ is a word with questionable value to the person on the Clapham omnibus, so anything I can do to help eradicate this sharp practice and restore some faith in retirement saving, I will gladly undertake.

And so, back to the disproportionate pile of paper on my desk, emails in the inbox and messages on the phone…roll on 25 August!

Category : A month in the life of pensions — admin @ 5:51 am June 11, 2014

April 2014

Isn’t it amazing how the Tuesday after a Bank Holiday weekend, feels like a ‘Mega-Monday’? Three days worth of time away from the desk to catch up on, with only four days left in the week to do so. To help lighten the load, here’s my brief take on the last month in the world of Pensions.

All change, please

The single largest piece of news in the last few weeks has to be the announcement from George Osborne, in his budget speech, that there were to be significant changes to the decumulation phase of pensions.

Kicking off on 27 March with the first of these changes, retirees were given greater access to their pensions savings. Lump sum withdrawals will now be allowed up to £30k, 25% of which will be tax-free. The remainder will be charged at the individual’s Income Tax rate, rather than the previous 55% levy.

Latterly, in April 2015, the restriction on drawdowns and the compulsory purchase of an annuity will be removed entirely meaning that, according to our long-surviving Pensions Minister, pensioners can “buy a Lamborghini but know that they’ll end up just living on the state pension”. Of course, as a Minister of State, the decision to purchase a sports car would be made much simpler with a £98,740 annual salary and gold-plated pension to match.

Dont know what youve got til its gone

I know that I mentioned Scottish Independence in my last missive, but I felt that the speech from Gordon Brown (remember him?) merited a short review. Our former Prime Minister broke cover to speak on behalf of the ‘Better Together’ movement, which is anti-independence.

He claims that pensioner numbers are rising faster in Scotland than in the rest of the UK and that, as Scots have been paying National Insurance ‘all their lives’, it is right that the British welfare system foots the bill. I do wonder whether the estimated £100bn public sector pensions cost, which Scotland would likely take on should the independence campaign be successful, is the main reason for raising his head above the parapet.

Its a Mr. Deathor somethinghes come about the reaping?

Finally for this month, I thought I’d touch on the proposed ‘reality check’ for those about to retire. Steve Webb is concerned that retirees often underestimate how long they might survive for, when they stop working. His plan is to set them straight on that and welcome them to retirement with a ‘broad-brush’ statement that indicates how long they can expect to enjoy it for. He goes further, stating that “there’s no point being all British and coy about it”. The wording for these statements has not been agreed as yet, although there are rumours that “Congratulations on retiring! Buy your Lamborghini, but we suggest that you only tax it for six months” has already been ruled out.

I return, now, to the vast numbers of emails in my inbox – hoping to reduce their number by the time the next Bank Holiday comes along…

Category : A month in the life of pensions — admin @ 5:50 am

March 2014

A month in the life……of Pensions.

I write this on the morning of St. Patrick’s Day, in advance of the inevitable pint of Guinness and the attempt to connect with my, non-existent, Irish roots, along with many others.

Breaking up is hard to do

Whilst on the Celtic theme, let me look at the vote for Scottish Independence. The ‘No’ campaign claims that “Scottish pensions would be put in danger if voters decided to spilt from Britain”. The reason for this says the Treasury’s Chief Secretary, Danny Alexander, is that British state guarantees would no longer be in place. Current polls suggest the split is unlikely (32% for independence, 57% against and 11% undecided) although with six months or so until the vote, there remains time for swing voters to be convinced one way of the other.


Alex Salmond dreams of Scottish Independence

Once in a lifetime

Savers have been warned that, from April 6, the lifetime allowance will be reduced from £1.5m to £1.25m, with a tax charge of 55% for anything in excess of this. Estimates suggest that around 360,000 pension savers will be hit, between now and 2030…I, along with millions of others, have a long way to go before this becomes a concern, though.

Occupational hazard

A couple of Defined Benefit schemes hit the headlines in recent weeks.

Boeing has frozen DB pensions for around 68,000 employees, moving them to Defined Contribution arrangements from 2016. The employer claims that the change will deal with the “unsustainable growth” of the scheme’s long-term liability – sentiments that will, no doubt, be echoed by many other employers.

It was also reported that the Public & Commercial Services union (PCS), the trade union that encouraged civil servants to strike over changes to their pension scheme, is facing its own ‘pensions crisis’ due to a £65.5m deficit between its two DB schemes. This figure is said to be more than twice the union’s £27.6m annual income. The PCS has, allegedly said that “it is no longer affordable to maintain benefits at current levels” and “no one single change to benefits is going to be sufficient to bridge the gap”.

Return to sender

We are told that the freezing of the state pension, for some of those who emigrated, is causing many to return to the UK due to lack of funds. 560,000 expatriates had their pension frozen at the point they left the country, meaning they do not receive the current £110.15 but a proportionally lower amount. Around 50% of pensioners who live abroad in some countries e.g. France, Spain and the USA, receive annual increases. Others e.g. South Africa, Canada and Australia do not. To level the playing field for the next year alone would cost around £590m, so I don’t expect to see the situation thaw any time soon.

And finally

The current Pensions Minister, Steve Webb, visited the Boleyn Ground (home of West Ham United Football Club) to celebrate the three-millionth person auto-enrolled into the workplace pensions scheme. Reports that the East Stand echoed with chants of ‘who’s the ******* in the tie’ are unsubstantiated.


West Hams latest signing, looks to live up to his transfer fee

And now, I depart for that pint of the black stuff…maybe even two – I wonder how that will affect my mortality?!

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Category : A month in the life of pensions — admin @ 2:02 pm March 24, 2014

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