UK Pensions Update

 

 

 

UK Pensions Update

In the words of the renowned Bob Dylan, ‘Times they are a changing’ – and never more so than in the UK pensions arena, with some very specific challenges for UK employers, employees, and advisers in 2016.

 

Automatic Enrolment and the smaller employer

We are now firmly in the Government’s planned time frame when smaller employers must auto-enrol their employees.  Although last month saw a 6 month easement on the time periods for AE contribution increases, staging dates (the date when their new duties start) remain unchanged.

Market capacity issue

Why were these dates put back? Quite simply the Government underestimated workloads and costs on smaller employers, and that there is a very real ‘capacity issue’ with pension providers struggling to meet demand for new AE pension schemes.  Many UK pension providers are now restricting their AE services, imposing charges, or only seeking larger schemes with contributions significantly higher than statutory minimums.  So, even if an employers’ staging date is some way off, it is vital that they start planning for AE now – or risk being driven down the Government backed NEST scheme route which has some significant restrictions, and is still unlikely to be immune from capacity issues.  

Adviser remuneration now fee based

The UK ‘Retail Distribution Review’ (‘RDR’) has created a fundamental culture change in the UK pensions industry, as advisers can no longer receive commissions paid by the pension provider and must now charge fees directly to employers for their advice and services.  Employers will therefore need to factor in these costs into their budget planning, in addition to their pension contribution payment responsibilities.

Changes to pension tax relief?

Substantial tax relief is given back to UK individuals who make personal contributions to their pension (circa £32bn per annum), with the lion’s share of this benefitting higher rate tax payers.  A consultation is in progress to review pension taxation, and it seems likely the government will be seeking to restrict tax relief for at least higher earners.  Higher rate individuals should consider increasing their pension contributions whilst additional rate tax relief remains available. 

Lifetime Allowance

From 6/4/2016 this is dropping from £1.25m to £1.0m and will likely double the number of individuals affected.  Some complex ‘protection’ options are available, and advice may be needed.

Salary sacrifice

Salary sacrifice generates National Insurance (‘NI’) savings by allowing employees to sacrifice some salary in exchange for employers making an equivalent pension contribution.  Rules were relaxed to accommodate AE but increased take-up is now having a detrimental impact on NI funding.  The government is now reviewing its stance on salary sacrifice schemes, and if withdrawn or restricted any ‘lost’ NI savings would be detrimental for employers and employees.     

Pension Scheme Governance

A statutory requirement for trust-based money purchase pension schemes since April 2015, a growing ‘best practice’ trend is for employers with ‘group personal pension’ arrangements to also consider installing a Governance framework.

 

How In2Matrix (UK) can help - early AE planning and employee communications

We work closely with employers to advise, plan and manage their AE process. We can also help design and facilitate a structured approach for employee communications which can include a benefits communication pack, group presentations, and one-to-one generic pension surgeries.  We can assist with the facilitation of a Governance Committee, structuring a meeting agenda, and attending meetings.  For employees requiring specific advice, we can agree relevant work and fees with them directly covering a range of services including pension transfer advice. 

 

To receive more updates, please contact:

Richard Birch FCII APMI APFS DipIEB

Chartered Insurance Practitioner

Director - Employee Benefits

In2Matrix (UK) Limited
101 Finsbury Pavement, London, EC2A 1RS

T: 0203 638 5152

D: 0203 638 5159

E-mail: richard.birch@in2matrix.com

 In2Matrix (UK) Limited is an appointed representative of In2 Consulting Limited, 

which is authorised and regulated by the Financial Conduct Authority