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Posts Tagged ‘Pensions News’

Government proposals to increase the auto-enrolment threshold to £10,000 could put 1.8 million women at risk of missing out on a pension, the TUC has warned.

Under the auto-enrolment scheme, which will be phased in from October, private sector employers will automatically enrol workers between the age of 22 years and the state pension age, into an approved pension scheme.

Workers will contribute 5 per cent of their wages and employers will top this up with another 3 percent.

Only workers earning at least £7,475 a year will be included, but this threshold could now be increased in line with the income tax personal allowance which currently stands at £8,105, but could rise to £10,000.

As the majority of low-earners are female, the change would exclude 1.8 million women and 500,000 men from auto-enrolment, although they would still have the option of opting in to a pension scheme if they wished to.

TUC general secretary Brendan Barber said: “Whether this is the best way to help the low-paid is an interesting debate, but it would be disastrous if it had the unintended consequence of excluding a significant proportion of women workers from pensions saving”.

Meanwhile the government has announced plans to launch a consultation into private sector pensions later this year.

With the majority of final salary retirement schemes now closed to new members it wants to look into how workplace pensions can be “reinvigorated”.

The cost of final salary pension schemes has caused companies such as Shell and Unilever to move workers into defined contribution scheme, which provide a much less generous pension.

The consultation will aim to create a new type of pension scheme which will bridge the gap between the two options.

The proposed middle-ground scheme has been called “defined aspiration”.

Consumer goods manufacturer Unilever has been given the backing of its trustee board for proposed changes to its pension scheme.

The company’s employees are currently involved in strikes against the proposal to close its final salary pension scheme.

In a statement the trustees said: “Whilst the trustee board does not welcome the company’s decision to cease final salary accrual, it has concluded it should not oppose it.”

Unilever will now be able to go ahead with plans to move existing members of its final salary accrual scheme to a career average pension scheme.

Trustees have secured several improvements including better protection of accrued benefits for final salary scheme members moving to the Career average scheme.

Final salary scheme members will also be allowed to continue to build up defined benefits for future service for pensionable earnings up to approximately £48,000.

Members of Unilever’s career average pension will also benefit from the trustee’s recommendations, as increases to pensions in payment will be improved and a new voluntary contribution matching scheme will be introduced.

Earlier this week the Government announced controversial plans which could help to protect final salary schemes.

With just one in five final salary schemes still open to new member, pensions minister Steve Webb is considering whether the schemes’ inflation ‘link’ should be removed.

Final salary pensions are guaranteed to rise by the cost of living each year and removing this link to inflation would save companies around £7 billion and could help to save schemes at risk of closing.

However, it would also substantially cut payouts for the two million active savers in final salary schemes.

The cost of the inflation guarantee is growing rapidly because of increased life expectancy.

The Department for Work and Pensions said that the rule change is being considered but no decision has yet been made.

People who retire this year will be £3,000 worse off than those who retired four years ago because factors such as the credit crunch, the recession and the eurozone crisis have pushed down annuity rates to a record low.

Annuity rates fell by eight per cent in 2011, which was the fourth consecutive year of decline.

According to Prudential’s Class of 2012 study, the average retirement income has fallen to £15,500 a year, a decline of 16 per cent, or £3,100, since 2008 and more than £1,000 a year less than last year.

Even when private pensions, company pensions and the state pension are all taken into account, it is estimated that five million pensioners now have an income of £10,000 or less.

Fewer than two in five people expect to be financially comfortable in their retirement.

The Government’s quantitative easing programme, which was designed to boost the economy by using £75 billion of new electronically created money to purchase gilts, is believed to have been a major contributory factor to the fall in annuity rates which are based on gilt rates.

The quantitative easing programme pushed up the price of gilts but reduced the amount of annual income they pay out.

Prudential’s study suggests that pensioners in London will have the highest pension, of £17,900 a year, while people in Yorkshire and Humberside will have to survive on just £12,800.

Prudential spokesperson Vince Smith-Hughes commented that the current economic climate has created a “perfect storm” for people preparing to retire, with pensions falling while the cost of living rises.

Yesterday, the Pension Protection Fund reported that the combined deficit of private sector pension schemes in the UK increased to a record high last year.

At the end of December 2011 the collective deficit for the UK’s 6,500 private sector final salary schemes was £255.2 billion, compared with £222 billion in November.

An independent pensions consultant claims that the government’s proposed reforms to public sector pensions will result in no cost savings whatsoever.

John Ralfe says that the savings which will be made by increasing the public sector pension age to 67 will be cancelled out by the faster build up of pensions in the new schemes.

The Government has defended the effectiveness of the reforms, claiming that Mr Ralfe’s calculations are based on a partial analysis and do not take either higher pension contributions or reduced levels of inflation proofing into account.

As well as increasing the pension age, the Government plans to introduce career average schemes for most public sector employees, as these will be cheaper to fund.

It also plans to increase the amount that workers’ must contribute to their pension scheme.

The Government has already cut pension costs by changing the way public sector pensions are inflation-proofed.

They are now linked to the consumer prices index (CPI) rather than the retail prices index (RPI) because the CPI is designed to rise more slowly.

However, Mr Ralfe points out that improved accrual rates, introduced after recent negotiations with trade unions, will mean that the proposed pension deal will generate no savings compared with the existing arrangements.

Meanwhile, Unison has criticised the Government for focusing on public sector pensions instead of the crisis facing private sector pensions.

Dave Prentis, general secretary of Unison, said: ‘The real pensions timebomb is in the private sector.

‘Already two thirds of these workers get nothing from their employers towards their pensions – this could cost the taxpayer billions in the future.

‘The situation will spiral even further out of control, if more schemes are shut down and the taxpayer has to step in to cover the cost of supporting even more workers in their retirement.’

The private pension sector has suffered a ‘seismic collapse’ according to a survey by the Association of Consulting Actuaries (ACA).

The ACA revealed today that nine out of 10 private sector defined benefit schemes, which promise a pre-determined monthly benefit on retirement, have been closed to new entrants and four out of 10 are closed to future accrual.

In the current economic climate businesses are struggling to reduce costs and the survey found that a fifth of private sector employers are looking for ways to cut their pension spend.

The ACA’s 2011 pensions trends survey warns that the gap between private and public pensions is widening and the organisation is calling on the government to address the situation urgently.

While more than 5 million employees in the public sector can still join defined benefit pension schemes, fewer than 2 million private sector employees are now in these schemes, most of which are closed.

Stuart Southall, chairman of the ACA, said: “The government needs to be bold in helping private sector employers so they can consider new ways to boost pension savings over the mid- to longer-term and public sector pensions are not far better.”

From October, workers will be automatically enrolled into their employer’s qualifying pension scheme, as part of the Government’s strategy to ensure private sector workers have a work-place pension.

However, the introduction of auto-enrolment for smaller employers was recently delayed because of the deteriorating economic climate.

Businesses with fewer than 50 employees may now not have to comment auto-enrolment until after the start of the next parliament in 2015.

Mr Southall said that the delay in introducing auto-enrolment for smaller employers was ‘discouraging’.

Following the ACA’s report, leading economists have joined the call for the Government to take action over private sector pensions.

Professor Brian Morgan of Cardiff Metropolitan University warned of the growing gap between public and private sector pensions, and called for the Government to address the increasing threat of poverty in old age.

“It is vital that more incentives are provided to encourage people to invest more in their pensions and other forms of saving for their retirement,” Professor Morgan said.

“What is needed urgently is tax relief for both employers and employees in ways that ensure that the Government provides a ‘matching’ contribution that tops up the savings of employees,” he suggested.