Which Pensions? - Pensions need an image overhaul

We've been browsing and wondering what other pension experts and providers might suggest to help solve the UK’s pension pains.

Ros Altmann, director-general of Saga, the financial services company for the over-50s, and a former pensions adviser to the Government, believes "pension" has lingering negative associations with scandal and disappointment. "'Pension' has become a negative word and it should be used only for the money paid to you by the state," she says. "The rest are your own savings for your own future and should be called something else."  This is where IFA’s can really help you to plan independently how to use your money.

She also thinks. "We need to make pensions more fun, perhaps with a lottery prize of £1m every month to get people interested," she said. "Many young people play the National Lottery each week hoping for a win, but their pound is gone. Many others have premium bonds hoping for a big prize, but they earn nothing on their money. With a pension lottery prize, people would still have their money, would get extra from tax relief or even employer contributions and would also have the potential for investment returns." The cost relative to current spending on pensions marketing would be small, she admits, but offering savers the potential of big gains today, not just in the future, could reinvigorate long-term savings.

An interesting idea but if you want to plan for using your savings, whatever you call them, to work for your future Bishop Stortfords IFA’s can help you.

It is obvious we all need to save more to boost pension contributions…

Indeed this is exactly why the Government is introducing auto-enrolement from October 2012. Automatic enrolement will get 5 million to 8 million people saving for the first time or saving more for their retirement with contributions from their employer. 

People must be encouraged to save as much as they can for as long as they can, with as few savings breaks as possible, adds Patrick Connolly, head of communications at a leading IFA. He believes that the National Employment Savings Trust (NEST) – a national pension scheme into which all employees will be automatically enrolled from 2012 – will help many more people to save at least something for their retirement. UK employees will be automatically enrolled if they earn more than £7,475 per year and have been with their employer for at least three months.

Until 2016 the total annual contribution will be at least 2 per cent of an employee's earnings above £5,715, of which the employer pays in 1 per cent. From October 2018 employees must pay 4 per cent into the scheme, with another 4 per cent being made up by 3 per cent from the employer and 1 per cent in the form of tax relief from the Government.

The Department for Work and Pensions spokeswoman said: "We welcome the findings  that show that the majority of people will stay enrolled in their pension as it will be a welcome boost for those who are struggling to save on their own.”  But there is nothing to stop you saving independently if you want to opt out and invest through a leading IFA in Bishop Stortford.

Readers might also be interested in the following relevant articles:

Might you be in the running for a SIPP? 
Saving for your retirement 
Pensions and the law

The state pension is too complex and unfair…

Many believe the state pension system should be reformed, so there are few or no means-testing penalties and the kind of provision people can expect to receive in retirement should be made clearer.

"People aren't incentivised to save, because those with income below a certain threshold qualify for full state benefits, while those who exceed the limit see their benefits reduced or even removed," says Alasdair Buchanan, head of communications at pension provider Scottish Life.

"The problem is that income from private pension savings is taken into account when calculating some of these benefits. As a result, an individual who responsibly decides to save then loses some means-tested benefits and could end up with the same overall income as someone who hasn't saved at all." This isn’t fair.

Government plans to introduce a flat-rate pension for everyone, of around £140 a week by 2016 should address the issue, he says.  This would not only be fairer for those who have saved responsibly through IFA’s but it might also encourage young people to save more if they knew how much state pension they would get.

Research for the National Association of Pension Funds (NAPF) found half of those aged 18 to 34 would boost their saving if they understood what they would receive from the state on retirement. NAPF said the state pension should be simplified from its current state as one of the most complicated in Europe.

IFA’s in Bishop Stortford agree and can help young and old plan for their retirement alongside current reviews of the state pension.

Make a financial plan for retirement...

The latest Future of Retirement report from HSBC has found that people expect to ease into semi-retirement in their mid-50s before stopping work at an average age of 62 – regardless of the fact that some 17 per cent of the 1,000 adults questioned don't know what their main source of retirement income will be and a further 21 per cent say they will rely on the state pension.

"The emergence of this ostrich generation is a real concern," says David Wells, head of investments, pensions and savings at the bank. "Britons know that they need to plan and save more for their retirement, but they are failing to turn this knowledge into action."

But those who don't bury their heads in the sand enjoy a significant financial and emotional premium, the bank found, as the 39 per cent of people with a financial plan have retirement savings worth more than four times those of non-planners, often managed through an IFA.

"We need a step-change to overcome this ingrained inertia and help people prepare for their retirement." Ian Naismith, head of pensions market development at Scottish Widows, said.

People would like to have an average annual retirement income of £24,300, a significant drop from the £27,900 they hoped to have in 2009.   But many who are not members of final salary pension schemes are saving an average of just 9% of their income into a pension each month, only three-quarters of the 12% of pay that Scottish Widows estimates people need to set aside in order to have a comfortable retirement. 

It is never too late to start saving, talk to one of Bishop Stortfordsleading IFA’s and make a pensions plan.

Readers might also be interested in the following relevant articles:

Might you be in the running for a SIPP? 
Saving for your retirement 
Pensions and the law

Might you be in the running for a SIPP?

The big attraction of self-invested personal pension plans (Sipps) over other types of contract-based defined contribution (DC) plans is they can invest in a broader range of assets, including shares and commercial property. Historically, this made Sipps largely the preserve of equity partners in small firms looking to club together to buy their business premises. In recent years, however, Sipps have been implemented in FTSE 100 companies, such as BT and GlaxoSmithKline, to cover the entire workforce, and their popularity is growing.

Most second-generation workplace Sipps have a two-tier structure, with a limited fund choice for most staff and a self-investment option for senior managers and directors. Ann Flynn, head of customer management at Standard Life, says: “In most cases, the true self-invested service is targeted at the senior layer of the workforce. Perhaps 90% of schemes are arranged on a segmented basis.”

Such structures have become possible because Sipp charges have fallen sharply, so members who do not use the greater investment freedoms are charged no more than if it was a group personal pension (GPP). “The basic Sipp offering is very similar to a GPP and priced on the same basis,” says Flynn. “It is only when the member moves into self-investing that there is any additional cost. Financial advisors can help you look at your options.

Saving for your retirement

In the current climate everyone should be thinking of reconsidering their pension provision.  IFA’s can help you review your pension at any stage of your life.

Some in the news say a simpler, more generous state pension of £140 a week would remove millions from benefits and provide an incentive to save without costing taxpayers more than the current system, a study argues.

Research for the National Association of Pension Funds found that under the existing system a third of pensioners would be eligible for the means-tested pensions credit by 2055, but under a single-tier state pension this would fall to 5 per cent. The NAPF said the study showed that of the Government's two options for state pension reform, the single-tier system costs no more than the current system and helps more people.

"It would particularly benefit low earners, women and the self-employed. It would also support 2012 pension auto-enrolment reforms by confirming that it 'pays to save' and that savings will not be eroded by means-testing," the NAPF said. 

Whatever your income it would be wise to reconsider your pension provision sooner rather than later.  Enable one of Bishop Stortford’s IFA’s can help you look at your options in the light of the current economic climate and help you start to make changes that work toward maintaining or improving the quality of life you can hope to enjoy in your hard earned retirement years.

Pensions and the law

Legislation will be introduced in the Finance Bill 2011 that will remove the tax charge on borrowing linked to the cost of setting up, managing or administering the national employment savings trust (Nest), subject to conditions.

Those affected include employer, employees, Nest and its members, as well as other qualifying pension schemes when auto-enrolment is introduced in 2012.

The legislation will also remove the tax liability on any interest payments on late pension contributions made by an employer to qualifying pension schemes and provide a regulation-making power to deal with any unintended tax consequences that may emerge as a result of the implementation of Nest and the employer duty provisions as set out in the Pensions Act 2008.

The national employment savings trust (Nest) is not intended to replace existing pension schemes such group personal pensions (GPPs), stakeholder schemes and group self-invested personal pensions (Sipps).  Speaking at the first day of the Employee Benefits Pensions Summit 2011, Paul Gilbody, director of market engagement at the Nest Corporation, said that the scheme is also not designed for everybody to use.

“Nest is not designed for everybody,” he explained. “Not every organisation will end up using Nest and quite right too. Nest is designed for a specific population – those who are not currently saving for retirement.”

“There is an awful lot of good provision out there at the moment and that will continue. Some employers will just carry on with what they are doing at the moment. The vast majority are going to have to make some decisions about what [provision] they are going to put in.”

As one of Bishop Stortford’s most respected IFA’s we can help you make sense of the changes that are coming into place.