Tag Archives: Pensions

Pensions boost: Royal Mail to pioneer ‘third way’ scheme – ‘win-win’ for savers

Savers have been stripped of certainty about their incomes in old age following the closure of final salary pension schemes by companies across the UK, but the Royal Mail is due to pioneer a new model intended to provide greater security and stability. The Collective Defined Contribution (CDC) scheme is designed to provide stronger protection against economic shocks – such as a pandemic – and also help people save towards a clear target income.

A Government source said: “This new ‘third way’ for workplace pensions is a win-win for savers – they’ll have the security of an income in retirement and better return on investment – it’s the best of both worlds.”

The widespread demise of final salary pensions means many people have to rely on Defined Contribution (DC) schemes which offer no certainty about income, and savings can be devastated by inflation and the poor performance of investments.

CDC schemes are intended to offer a new way forward. The Government is confident the new model will deliver higher incomes for the same level of contributions as individual DC pensions.

The consultation will nail down the final details about how the new pensions scheme will work, paving the way for companies across the country to offer these to employees.

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A key difference with DC schemes is that both employers and savers will contribute to a pooled fund which will provide members with a regular income.

It is also expected that CDC schemes will be good for employers, providing greater predictability about their costs and obligations.

The Royal Mail is due to lead the way in rolling out a CDC scheme for more than 100,000 employees. Such schemes are well-established in the Denmark and the Netherlands.

Pensions minister Guy Opperman said: “We have seen the positive effect of these schemes in other countries – and it is abundantly clear that when they are well-designed and well-run they have the potential to provide a better retirement outcome for members, and can be resilient to market shocks such as the pandemic.”

Mr Opperman said savers should not face a choice between “security and affordability”.

Matt Rodda, Labour’s shadow pensions minister, described the new model as “potentially exciting”.

He said: “Pensioner poverty has been on the rise and the Government must do much more to secure a decent standard of living for everyone in retirement. Collective Defined Contribution schemes could be a potentially exciting answer to some of the challenges we face in making sure all workers have a decent standard of living in retirement.

“This consultation is an important opportunity the Government must not squander to make sure that schemes are fair, sustainable and accessible to different types of employers.”

The proposals received a guarded welcome from Daniela Silcock of the Pensions Policy Institute.

She said: “Designed effectively, CDC could provide members with greater certainty and potentially higher retirement incomes. However, in order to ensure sustainability, scheme managers need to ensure that members understand the potential benefits as well as the potential risk – for example, contribution rises or benefit cuts during times of economic shock.”

Former Conservative pensions minister Baroness Altmann also sounded a note of caution, saying that in other countries CDC schemes have had problems “because younger members may end up with lower pensions than older ones if the actuarial and investment assumptions prove incorrect”.

She added: “I can see some employers, such as Royal Mail, feel the need to try to replace traditional [final salary] schemes, which are ruinously expensive now, with something better than DC… Time will tell, however, whether these schemes really do deliver better outcomes particularly for the younger members. “The risks of inter-generational unfairness are clear.. The theory is good, whether such schemes work for members in practice will only become clear over many years.”

Angela Gough, head of corporate pensions at the Royal Mail, said: “[We are] committed to delivering the best possible pension arrangements for our people. We believe a Royal Mail Collective Pension Plan pension scheme would meet our objectives of providing sustainable and affordable future retirement arrangements for our people and our Company.

“The DWP consultation puts us one step closer towards making our plan a reality for Royal Mail and its people. We are working closely with CWU [trade union] and others on this important issue.”

Caroline Abrahams of Age UK added: “The move to defined contribution pensions has left individuals shouldering all the risk in the event that something goes wrong with the investments… There is so much that can go wrong, for example falling victim to a scam, and anything that introduces risk pooling into pensions is a step in the right direction.”

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This post originally posted here Daily Express :: Finance Feed

State pensions set to hit £10k as salaries rise after coronavirus pandemic

The safeguard guarantees that the payout will increase in line with inflation, earnings or 2.5 percent – whichever is higher. Salaries rose 7.3 percent in the three months to May and 8.6 percent annually as people return to work after the pandemic, say official figures. A 7.3 percent uprating would push the basic state pension up from £137.60 a week to £147.65.

Younger pensioners claiming the flat-rate payout will go from £179.60 a week (£9,339 a year) to £192.70.

But the bill for the overall rise will be an additional £6.7billion in 2022/23. This is £4.4billion more than if the pension increased by consumer price inflation or 2.5 percent only.

But experts warn the total cost could be even higher as the Office for Budget Responsibility has forecast that earnings growth could rise to eight percent in the next two months.

Tom Selby, senior analyst at AJ Bell, said it was “entirely plausible” average earnings could spike as more parts of the economy open up.

He said this could increase the value of the flat-rate payout by £746.20 to more than £10,000 a year.

Mr Selby said: “Chancellor Rishi Sunak faces being caught between the devil and the deep blue sea on the state pension triple lock.

“While the policy could add billions of pounds to public spending at a time of severe fiscal pressure, unpicking it would break a manifesto commitment.”

However, to reduce the cost, and maintain a link to real wages, Mr Sunak could temporarily tweak the safeguard by using a three-year rolling average figure for wage growth.

This would uprate the pension by 3.4 percent in 2022/23, said figures from Jon Greer, head of retirement policy at Quilter.

This would save the Government £3.5billion next year.

Mr Greer said: “Real wages aren’t really growing by 7.3 percent when you remove the distortionary impact of Covid. The Chancellor has said there must be fairness between taxpayers and pensioners in setting the state pension increase, and one way is by basing the earnings-growth element on a three-year rolling average figure.

“State pensions will still increase by a generous 3.4 percent next year, but the Exchequer will save £3.5billion and preserve some intergenerational fairness. Debates around the triple lock often get linked to the overall level of the state pension but that is another matter. Tweaking the triple lock doesn’t mean a state pension cut.

“This is about how it maintains its value fairly over time.”

Former pensions minister Sir Steve Webb said Mr Sunak could still “recommit” to building up the value of the pension long-term.

But an adjusted average earnings figure for the April 2022 uprating could get him “off the hook” this time round. Sir Steve, now at consultants Lane Clark & Peacock, said the triple lock “was not designed for a period when average earnings are as volatile as present”.

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This post originally posted here Daily Express :: Finance Feed

State pension triple lock: DWP has ‘no plans’ to remove freeze on pensions for UK expats

In December, the Group detailed the Governments from Canada and Australia, two countries with among the highest numbers of excluded British retirees, had submitted damning evidence which condemned the policy.

According to evidence examined within the report, both of these governments have confirmed a readiness and willingness to work with the UK Government to end this policy but emphasis was placed on the fact that the issue can be resolved by UK domestic legislation.

It was highlighted both Canada and Australia provide full state pensions to their pensioners who live in the UK, with the UK being the only country in the OECD to pay their pensioners differently based on where they live.

At the time, representatives for the Canadian Government issued the following statement: “Over the years, the Government of Canada has raised, and has sought to address, this issue with the UK, including by proposing the two countries negotiate a comprehensive social security agreement that would provide for the indexation of UK pensions.

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This post originally posted here Daily Express :: Finance Feed

Pension POLL: Should triple lock be broken if pensions rise 8% under rule? VOTE

State pension payments offer support to older people who are eligible to receive the sum from the Department for Work and Pensions (DWP). To receive the payment, individuals must put forward a set number of National Insurance contributions throughout their lifetime. For many people, then, the state pension serves as a primary source of income in retirement, particularly useful when the regular payment of a salary or wages is lost.

Understanding the importance of a state pension to millions of Britons, the Triple Lock Mechanism is in place to protect the sum.

First introduced in 2010 by the then-coalition government, the mechanism is designed to protect the state pension in real terms.

Triple Lock sees the basic and new sum rise by the highest of three key components: average earnings growth, inflation or 2.5 percent.

For this tax year, the sum increased by 2.5 percent, but there has been discussion about the pending increase for the forthcoming year.

READ MORE: State pension: Warning as ‘low’ sum leaves millions at risk

While this has led some pensioners to celebrate a potential boost to their sum, there is concern in other camps.

Mainly, there has been a suggestion that the Triple Lock policy is not viable, and with increases set to be high, some have said it should be scrapped altogether.

Such an increase, it has been argued, is unfair for younger generations, many of whom have been impacted by the pandemic.

Others have suggested a modification to the policy, perhaps a ‘double lock’ or a temporary freeze to ensure the longevity of state pension support.

Recently, the Chancellor Rishi Sunak was pressed on whether the policy would be maintained in the future.

GB News presenter, Andrew Neil, questioned the Government’s stance on the matter.

Mr Sunak responded: “Of course the triple lock is still Government policy. 

“I think formally, I have to be very careful, as I can’t comment on fiscal policy outside of events, which I’m sure you’ll understand.

“With regards to pensions uprating, there is a statutory review which is carried out later on in the year, which is then brought to Parliament.

“What you’re referring to are forecasts, but as we’ve seen over the past 12 months, we’re in a period of extraordinary economic uncertainty, and lots of the forecasts we’ve seen have moved around and changed.

“I’d put that in the bucket right now, that’s speculation, and when we get to the autumn, there will be a formal review.”

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'So the answer's yes!' Rishi Sunak squirms as Andrew Neil says pensions could rise 8%

The Chancellor looked visibly uncomfortable on GB News as he was confronted with the potential of the bumper increase in pensions as the country’s debt piles higher and higher. The triple lock mechanism promises the basic and the new state pension will be uprated each year by the highest of earnings, prices or 2.5 percent. However, as more people get back into work after a year of downturn, it is thought wages data will be somewhat warped for the coming year.

He said: “I think formally, I have to be very careful, as I can’t comment on fiscal policy outside of events, which I’m sure you’ll understand.

“With regards to pensions uprating, there is a statutory review which is carried out later on in the year, which is then brought to Parliament.

“What you’re referring to are forecasts, but as we’ve seen over the past 12 months, we’re in a period of extraordinary economic uncertainty, and lots of the forecasts we’ve seen have moved around and changed.

“I’d put that in the bucket right now, that’s speculation, and when we get to the autumn, there will be a formal review.”

When pressed further by Mr Neil, the Chancellor went on to once again stress the triple lock is the Government policy, but did not go as far as to say what the rise would be.

While he acknowledged the numbers quoted are correct, he provided a rebuttal, stating he would “not get drawn into” speculation about figures. 

Figures surrounding the triple lock have grabbed attention recently, with estimates suggesting Mr Sunak faces a bill of £4billion to keep the policy in place. 

The future of the state pension is an issue of particular importance to older people who wish for their income to be secured for years to come.

Many people with limited income will be relying upon the state pension increases to ensure their income keeps up with the cost of living.

While the future of the policy appears to be secure in the short term, the longevity of triple lock is not yet clear.

Some organisations and experts have suggested a modification of the policy to a so-called ‘double lock’ which would call time on the mechanism as it currently stands.

However, there have been some calls for the policy to be scrapped altogether, due to rising costs, particularly brought about by COVID-19. 

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This post originally appeared on Daily Express :: Finance Feed

State pension: Gloria De Piero epic skewering of pensions minister on triple-lock increase

The State Pension triple lock is a commitment made by the Government to update the basic and new state pension sum annually. Each year, the sum rises by the highest of earnings, prices, or 2.5 percent in order to protect the state pension sum for the future. With many people reliant on the state pension in later life as a key source of income, the prospect of a disappearing triple lock is concerning.

And with the future of the policy increasingly being brought into question, the Government is now facing pressure.

Journalist and former Labour Party politician Gloria De Piero, today appeared on GB News, where amongst other topics, the state pension was on the agenda.

The future of the triple lock was discussed on the newly-launched channel, where pensioner income was discussed. 

Ms De Piero honed in on this matter, where she grilled the pensions minister Guy Opperman on the future of the policy.

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It seemed, though, as if the pensions minister was quick not to tie the Government to the longevity of the policy as of yet. 

Mr Opperman was quick to fire back with a response on the matter, appearing to urge patience. 

He said: “I think what you’re doing is jumping the gun – the decision is not made until the autumn.

“What you’re taking is an individual set of figures, the most recent figures but those are not the figures that are based upon the triple lock calculation calculated in the autumn.

Since the start of the pandemic, the future of the triple lock policy has been discussed, and often thrown into doubt.

Some have suggested the policy is too expensive to continue in its current format, given the strain on the economy over the last 18 months.

However, understandably there has been push-back from pensioners who are keen to protect their state pension income in the years to come.

The Treasury has said the new rate of state pensions will be announced by the Work and Pensions Secretary, Dr Therese Coffey, in her annual review.

But the decision will ultimately lie with both the Chancellor and the Prime Minister on the future of the policy. 

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This post originally appeared on Daily Express :: Finance Feed

British expat warning: UK pensions may not generate 'sufficient income' for EU visas

Pension income from UK schemes may not generate “sufficient income” for some EU countries and this could impact residence visas according to new analysis. Britons who wish to take up residence in an EU country must now demonstrate that they, and their dependents, have sufficient income and not be a “burden on the state”.
What constitutes sufficient income will vary from one country to another, making retirement planning difficult for many.

Jason Porter, a director of specialist expat financial advice firm Blevins Franks and head of its new European Emigration Advisory Service, broke down how these new parameters will impact UK citizens.

He said: “This raises a problem for many expats who have invested in EU-compliant, tax-efficient investment products.

“Many have placed their financial assets in life insurance bonds or UK pension schemes and intend to utilise the flexible and often tax-efficient withdrawal facilities associated with such structures.

READ MORE: Attendance allowance: Pensioners may be eligible for council tax perks

Jason concluded by detailing expats will not be granted a residence visa unless they can demonstrate this income stream.

They will also need to be in receipt of a visa before they can spend more than 90 days in an EU country.

According to the DWP, current UK law allows for workplace pensions to be paid overseas and the Government did not expect this to change because the UK has left the EU.

The DWP notes that if a retiree has any questions on this, they should contact pension providers directly.

If a workplace scheme is paid into a UK bank account, the bank should contact the person involved if they need to change the way they receive the pension as a result of the UK leaving the EU.

The Government has also confirmed a person can carry on receiving a UK state pension if they move to live in the EU, EEA or Switzerland and you can still claim their state pension from these countries.

The state pension payments will still be increased each year in the EU in line with the rates paid in the UK.

Additionally, retirees will also be able to count relevant social security contributions made in EU countries to meet the qualifying conditions for a UK state pension.

It’s also possible to have pensions and benefits paid by an EU, EEA country or Switzerland and if this is the case, retirees will need to check the rules in the country they are living in or moving to with that country’s social security authority.

Pension providers themselves should make plans to ensure retirees can still get payments from an annuity or personal pension following the UK leaving the EU.

Where changes are needed, providers should contact the retirees involved to keep them informed.

Where people are unsure of their entitlement, they can head to the Financial Conduct Authority’s (FCA) website where the regulator has published information on what pension providers need to do because the UK has left the EU.

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This post originally appeared on Daily Express :: Finance Feed

Pensions ranked: Europe's best countries for retirement – UK doesn't make top 10

Pension income and retirements can be impacted by a whole range of economic and societal issues and as such, a new report by Blacktower Financial Management Group narrowed down where retirees should look for the best outcomes. In examining crime rates, cost of living, life expectancy, property prices, and population ages, it found both the best and worst countries for retirement.
In their latest update, Blacktower Financial Management Group found that Finland is the best European country for retirement in 2021.

Belarus is the worst country and the UK “fell short of the mark” at it ranked 24th on the index.

Finland was quickly followed by Spain, a popular retirement location for UK expats, and Blacktower Financial Management Group broke down what placed these two countries in the top position: “The laid-back Finnish atmosphere and magic of the northern lights see many retirees going ‘off-grid’ to enjoy their well-deserved retirement.

“With breath-taking views, fresh lakes, vast forests, and quaint cities; it is no surprise that Finland draws millions of retirees to their border each year.

“Second in the rankings is the country of Spain.

READ MORE: Council tax: England’s richest areas have lowest council tax bills

Pension rankings were examined in mid-April through a House of Commons Library Briefing Paper written by Roderick McInnes.

This report compared the pension systems among UK, EU and OECD savers and within this report, the Mercer CFA Institute Global Pension Index was utilised.

This index annually cross-examines the pension systems of 39 countries, utilising more than 50 indicators.

The latest report placed the UK in 15th place, achieving an overall score of 64.9 (out of 100) with a corresponding grading of C+.

If you can’t see the poll below, click here

Pension provision and general planning remains an issue in the UK and the financial regulator has made some efforts to encourage savers to take their retirements seriously.

In early May, the FCA proposed new rules to require pension providers to “nudge” consumers to Pension Wise, in an effort to benefit from guidance before pensions are accessed.

Currently, pension providers are required to “signpost” consumers to Pension Wise guidance but take up remains low.

As such, savers are to be pushed harder on this as Sheldon Mills, the Executive Director of Consumers and Competition at the FCA, explained: “Pension Wise is a great service which helps people to understand their options when accessing their pension savings.

“We know that when people use Pension Wise they are happy with the service and find it helpful. However, few people are choosing to attend a guidance appointment.

“Our proposals will help to ensure that consumers get more information about the service, are further encouraged to use it and can have an appointment booked for them there and then.”

Becky O’Connor, the Head of Pensions and Savings at interactive investor, welcomed this news, as she remarked on how British savers need help with their pension planning: “Pension Wise is a free, impartial service – why not use it? Retirement planning is not up there on the list of fun ways to spend time, so we need all the help we can get when it comes to getting it sorted – when it comes to pensions, sometimes it needs to be a shove rather than a gentle nudge.

“Our Great British Retirement Survey last year suggested that only 14 percent of consumers were using this service, only marginally ahead of getting advice from friends and family (11 percent). Some 36 percent of respondents said they do their own research, and 28 percent use the financial press. But none of this needs to be at the expense of using a free, government backed service as well.”

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This post originally appeared on Daily Express :: Finance Feed