Start early to plan for retirement.

We live in a time when the state pension age is increasing, the number of DB (Defined Benefit) Pension Schemes open to new members is decreasing, and more and more individuals will rely on DC (Defined Contribution) Pension Schemes in their retirement.

As a result of Auto Enrolment, it’s true to say the more people than ever are saving for their retirement. But the question is, will it be enough? For some, saving for retirement is at the bottom of their “to do” list.  Even if it’s on their agenda, they may not be in a position to save as much as they would like.

A question I am often asked is “How much do I need to contribute?” Of course, the answer to that is another question, “What sort of life style do you want in retirement?”  And the answer to that can range from “I don’t know” to “I don’t want to change my life style from what I have at present”.

Yes, we can make an educated guess, using assumed growth rates and assumed life styles. But that’s what the are – Assumed!

The best answer is generally, start early, ie in your teens or twenties and give yourself plenty of time to build up a substantial pension fund.  Apologies to those of you who have just missed those age groups.   But maybe you could encourage your children to start early.  Trouble is when you’re a teenager, you’re never going to get old, are you?

Remember, it’s not “the timing of the market”, it’s the “time in the market”.

Claire Trott: Public still has it wrong on pensions versus property

Latest statistics show personal pensions, in particular, get a bad rap

The recently published preliminary estimates from the Office for National Statistics’ Wealth and Assets Survey make for interesting reading with regards to how people view pension savings and how safe they are.

This survey has been run numerous times in recent years and it is always clear those questioned see employer pensions and property the safest way to save for retirement. They have actually attracted an even greater share of the votes in the last two rounds of the survey than previously.

The fact employer pensions saw 40 per cent of votes is a good thing but it does not tell the whole story. I wonder how much of this increase is because of automatic enrolment.

What is disappointing is that only 13 per cent thought that personal pensions were the safest way to save. With the move from defined benefit schemes to defined contribution schemes, there will be very little difference in the two. The fact employer schemes should at least have some additional contributions may make them more popular but it does not make them any safer.

It will be interesting to see if this becomes more aligned in future when DB schemes become even rarer.

On the flip side, when looking at which method of saving for retirement will make the most money, employer pensions came in a poor second, with 22 per cent of votes.

The top spot went to property, with 49 per cent. While this is no surprise, it does begs the question as to whether this is the right way for the public to consider it.

I know that the question put to the voters was not about what they had actually invested in but it is clear that those looking for bigger returns consider property to be the best option.

Of course, this is often not the case.

As we know, pensions offer tax relief and tax free growth while invested, whereas property has ongoing costs, costs when finally sold and tax on profits.

And personal pensions? 6 per cent of those surveyed believed they would make the most money. This is the most disappointing finding. We all know they are able to invest in the same, if not a more diversified, range of assets than the employer schemes and even property in some cases.

The need for education about retirement options is still clear. Retirement is not a single investment at a single point in time. All the options in terms of saving for the short and the long term need to be considered. All savings can work for retirement; clients do not need to put all their eggs in one basket.

As always, advice is key as they progress through life.


Claire Trott is head of pensions strategy at Technical Connection

Suspect pension advisers to be named on watch list

Excellent news:-

Firms and advisers arousing industry suspicions of wrongdoing will be placed on a semi-secret watch list to warn businesses considering working with them.  The Pensions Administration Standards Association (PASA) is working on a closed list with names of pensions schemes and advisers that have been flagged up as potential scammers, to be shared among pension scheme trustees and providers.

Margaret Snowdon, chairman of the association, said the goal of the list isn’t to stop any pension transfers, but to raise awareness among trustees and providers when a name in the list pops up, so they can increase their due diligence.  She said: “Some providers and trustees have their own watch list. What we are looking for is to create a closed network where they can share this information.”  Ms Snowdon is currently in talks with the National Fraud Intelligence Bureau, the Financial Conduct Authority, The Pensions Regulator, HM Revenue & Customs and the Pensions Ombudsman to involve them in the creation of the list, which she expects to be launched by the end of the year.

However, details such as how the information will be shared, who will be in charge of the list or how potential legal implications will be avoided are still being discussed, she added.  We understand that the FCA is aware of the creation of this list but it’s not involved in these discussions at this time.

Several industry experts, however, have raised concerns about the efficiency of such watch list.  Steve Webb, director of policy at Royal London and former pensions minister, said: “As a provider, and particularly as a member-owned business, we are very keen to explore ways in which we can better protect our members’ money at the point of transfer.  The idea of a list of receiving schemes where concerns have been raised is an interesting one which should be explored, but it would be likely to raise considerable practical and legal difficulties”.

Yes, we agree, but it is vitally important to protect the public from unscrupulous, individuals who give those of us who give good, solid advice a bad name.

Industry Voice: I’ll think about my pension next year

“I’ll think about my pension next year”. It isn’t unusual for clients to make this statement. Often they think they can leave it until they have more money, have paid off the mortgage, built up the business and so on. That strategy used to work. However, the reduction in Annual Allowance (AA), removal of year of vesting exemption and the potential for the tapered Annual Allowance to apply at some point makes it harder to build up the same size of funds as before. Making sure allowances are used could be crucial.

Carry forward – how does it work?

As unused Annual Allowance can only be carried forward from the three previous tax years and only after the current Annual Allowance has been fully used. However, what is sometimes forgotten is that you have to have been a member of a UK registered pension scheme for any year you are carrying forward from.

Making use of prior year’s unused allowance requires that the current year’s allowance is used first. This means carry forward is only appropriate for clients with relevant income over their 2017/18 Annual Allowance (unless the contribution is made by an employer, as employer contributions are not limited by the individual’s relevant income). You then go back to the furthest away tax year, in this case 2014/15 for any excess that is using carry forward.

Planning around using carry forward

To ensure that unused allowance from 2014/15 can be used up this year using carry forward first identify unused allowance from pension input periods ending in 2014/15. Second, make a sufficiently large pension contribution so total inputs are at least the unused allowance amount plus the relevant Annual Allowance for the 2017/18 tax year.

It should always be remembered that if the contribution is to be made as a personal contribution (that is, not an employer contribution) the pension member will need to have sufficient ‘relevant income’ to support any level of pension contribution.


MPs target Auditors as Company Pensions collapse

The work and pensions select committee wants the government to tighten the net around auditors and their role in company pensions collapses in its upcoming paper on defined benefit (DB) schemes.

Labour MP Frank Field told FTAdviser that the document, expected to be published in the spring, should have a look on “what is the duty of auditors of companies, should that also encompass the state of the pension fund, [and] what sort of warning notices should auditors be making on this front”.

This is a view shared by other members of the committee, such as Scottish National Party MP Chris Stephens.

The Department of Work & Pensions (DWP) has been working on its white paper on DB schemes, which was first expected to be published in 2017, then delayed to February 2018, and it is now expected before the summer.

The paper, which follows a consultation launched in February into what needed to be done to ensure confidence and secure the future of these schemes, will consider the need to adapt the regulatory regime.

The role of auditors came to light in the case of the collapse of Carillion, as KPMG signed off the accounts of the contractor in March 2017.

After unsuccessful talks with its lenders and the UK government, Carillion made an application on 15 January to the High Court for compulsory liquidation.

Mr Field said: “A particular aspect arises with that company [Carillion] which we are concerned about, which is namely how can the accountancy firms sign off suggesting that the company is a going concern, when months later it collapses.”

A going concern is a business that functions without the threat of liquidation for the foreseeable future, usually regarded as at least within 12 months.

Mr Field also wants to clarify if auditors, when they are making that judgment about a going concern for the coming year, “shouldn’t they take into account what is happening on the pension funds – whether that is coming out of control, or if that should be noted in their report when they are signing off the accounts”.

Steve Bee: Make way for the next generation of Waspi women

A Well Respected Pensions Expert, Steve Bee, recently wrote the following article in one of the Industries Technical Press publication.  I thought it would be of interest to you if I shared it.

Mishandling of the recent rapid increases in the state pension age have had a devastating effect on many women

There are three main ways to provide ourselves with income when we reach later life. We can invest into a pension scheme ahead of time while at work, we can rely on future taxpayers in the form of the state pension, or we can simply carry on working for the time we are fit and able to do so.

It is dangerous to rely on just one of these types of income provision, so a mixture of all three is the ideal strategy.

The problem we have in the UK is that, for more than half a century, just half of our working population has ever been given access to company pension schemes. As a result, half the population has ended up relying entirely on the state pension if they want to give up working later in life.

While it is true those without company pension schemes available to them could have deferred income and invested it in a personal pension, it is equally the case that, in company schemes, it has been contributions by employers, not employees, that have made up the bulk of the money invested.

Deferring income through not being given access to it in the first place is clearly a more effective way of maximising long-term pension savings.

So, half the population has always earned two forms of money while at work: ready money they could spend on day-to-day living and pension scheme money they could not spend until they were older.

These people have been lucky enough to reach old age with many options available to them in terms of income and security. They have both their private pensions and their entitlement to the state pension, and they still retain the option of continuing to work to earn a further income stream.

The other half of the working population that has not had the benefit of their employers investing substantial amounts of deferred income on their behalf have been dangerously dependent on the state pension or their own ability to carry on working.

Steve Bee: “Our pensions system has lost its purpose”.

That is why the mishandling of the recent rapid increases in the state pension age have had such a devastating effect on so many women. It is women who have been (and will be) most severely affected by the equalisation of state retirement age with men and the subsequent increases in that common state retirement age.

It is hardly surprising that the Women Against State Pension Inequality (WASPI) protest movement formed as a result of such fundamental but poorly communicated and hurried reforms.

That movement will not be going away any day soon, as the next decade will see those born in the sixties affected, with many of those also finding they will need to work until their late-60s before they can retire on the state pension.

One long-standing problem remains: we are content to see half the working population reach retirement with so few options available to them.