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Pensions News
Pension News 01/06
PENSION NEWS
This is a summary of my presentation given to the UKMPA at their annual conference held in
PNPF 2005
Last November when I said that we would hit the floor running in 2005 I was not mistaken although not all our running was in straight lines and occasionally we ran in circles and sometimes it felt like we were disappearing up the proverbial. 2005 has seen meetings, changes and loads of training just in case we were getting bored.
Considering the amount of time the Trustees have had to dedicate to the Fund
this year it makes you ask: Who wants to be a Trustee?
Following Maxwell’s nose dive from his yacht pension reforms started coming through thick and fast in the form of the Pensions Act 1995, the Myners’ Review, and the Pension and Finance Acts 2004. The upshot is the role of a scheme trustee in 2006 will be unrecognisable from what it was in 1986 and even 1996. Gone are the days of meetings only lasting until lunchtime.
During the course of 2005 the Trustees
have attended 4 quarterly Trustees’ meetings, 4 meetings covering the valuation, investment strategies and training, 1 beauty parade and a subcommittee meeting twice to discuss tax simplification. In addition to the extra workload, from April 2006 the Pensions Act 2004 legally requires Trustees to know and understand the law relating to pensions and trusts, general funding and investment principles, as well as being conversant with scheme documentation. Failure to do so could result in personal liability.
In relation to the Fund the Trustees will be required to be conversant with the Trust Deed and Rules; the Statement of Investment Principles; The Statement of Funding Principles; the Annual Report and Accounts and the Scheme booklets.
In addition they must have appropriate knowledge and understanding of the law relating to pensions and trusts; the principles of funding occupational pension schemes; and the principles of investing the assets of occupational pension schemes. To assist in this The Pensions Regulator (TPR) is issuing a Code of Practice setting out the parameters of knowledge and understanding involved.
Tax Simplification
One of the subjects exercising the minds of the trustees this year was tax simplification. After much deliberations the measures the trustees have decided to adopt, from 6 April 2006, are as follows:
Additional Voluntary Contributions
From April 2006 the trustees have decided to only offer the Open Market Option to members deciding to take all or part of their AVCs as an annuity. This means the ability to purchase an additional pension from the Fund will no longer be available.
On the upside, following clarification in the 2005 Finance Act members can take 25% of the value of their benefits from each pension arrangement, meaning the AVCs can now be considered together with the main scheme benefits. In simple terms all AVCs members will be able to take at least 25% of their AVC fund as cash, and possibly all of it, to the extent that it is no more than 25% of the total value of benefits provided through the Fund.
Lifetime Allowance (LTA)
This has been touched on previously but in order to determine whether members will require Enhanced or Primary Protection Aon Consulting are carrying out an exercise to determine which members may have benefits in excess of the current LTA, or may exceed the LTA should they continue to NRA.
In addition active members have been sent, by the Secretariat, a form for completion to ensure that all your benefits are taken into account when calculating the total value of your benefits.
Pension Commencement Lump Sum
(PCLS)
I do not know why the powers that be felt the need to change the name of the taxfree cash sum, maybe they thought the Inland Revenue would leave it alone if the took away the words tax-free.
Members will now be able to take 25% of the total value of their benefits as a lump sum, although it is not really 25% that is just to confuse you. The maximum cash sum can be expressed as:
Pre Commutation Pension x 20 x 10 20 + (3 x 10) (10 being the Fund’s commutation factor).
This sum must not exceed:
º (PCLS + (Residual Pension x 20).
This is after all simplification!
Five Year Guarantee
This remains the same but will now be known as a Defined Benefits Lump Sum Death Benefit.
Flexible Retirement
The Trustees have agreed to allow members to draw their PNPF benefits whilst remaining in pilotage, with the proviso that no future benefits will accrue in the PNPF and your CHAs agreement would be necessary to avoid any manpower issues.
Children’s Pensions
Children’s pensions that become payable after 06.04.2006 will have an upper age limit of 23 if remaining in full-time education this has been reduced down from age 25 currently permitted under the Rules.
PNPF Rules
Two changes in PNPF Rules arising from the Valuation were effected in June 2005. A new Rule 14(4) allows the Trustees to seek additional funding from an employed port should they cease to have PNPF pilots and wish to cease participating in the PNPF to cover the CHAs portion of the deficit. The second is a new Rule 19(3) which apportions a member’s service between the pre 01.08.05 and post 01.08.05 retirement ages.
Pensions Act 2004
Key provisions of the Pensions Act 2004 came into force on
The Pension Protection Fund (PPF) was established.
The Financial Assistance Scheme (FAS) was established.
The pensions Regulator (TPR) was
established in place of OPRA.
New minimum compulsory increases in pensions in payment for service after 6 April 2005 will be the lesser of 2.5% or the increase in the Retail Price Index. (This has not been adopted by the Trustees).
Armageddon (not the end of the World)
A recent survey carried out by YouGov on around 2200 people showed that while 16% knew A-Day referred to the new pension tax simplification regime, around 11% thought it was the day the world would end. A further 46% thought A-Day stood for Armistice Day and 19% said it was the day A-Level results were published. Communication is obviously not the pensions’ media forte!
Debbie Marten
Pension News 10/05
PENSION NEWS
THE SECRETARIAT
I cannot believe we are in the last quarter of 2005 with just one more trustees meeting before the end of the year and the hustle and bustle of Christmas holidays to look forward to (although some of us get a pre-Christmas practice at Thanksgiving). Still the first three quarters of 2005 proved to be very busy for the Secretariat and I have no doubt that the last quarter will be the same.
VALUATION AS AT 31 DECEMBER 2004
The 2004 triennial valuation has been presented to the trustees and like many
To address the funding deficit the
Trustees have raised the normal retirement age of Existing Members for future accrual and carried out a substantial review of the asset allocation to determine how best to take the Fund forward. Perhaps most importantly the Trustees have obtained legal advice and a QC’s opinion and are now in discussions with the Participating Bodies and the UKMPA to decide how to deal with the deficit and formulate a recovery plan.
INVESTMENT REVIEW
Following the results of the triennial valuation the Trustees commissioned a review of the investment strategy. Although formal recommendations have yet to be received from the Investment Consultant the Trustees have agreed, following consultation with the employers, to invest 10% of the Fund’s assets in Goldman Sachs’ Direct Strategies funds. These funds are targeting high performance returns without increasing the Fund’s risk.
“A-DAY” PROTECTION
In late July forms were sent to all active members of the PNPF requesting details of any other retirement benefits they may have in order to determine whether they should be seeking independent advice prior to ‘ADay’ (
TRUSTEES TO GO BACK TO SCHOOL
Next year it is back to the classroom for trustees regardless of their standing or experience. The Pensions Regulator (TPR) will require them to show an understanding of pension law and practice as well as funding and investment. It cannot be avoided as in 2007 they will be required to report to the Headmaster (TPR) on how much learning they have done. They will not, however, have to pass any exams.
NEWS IN GENERAL
With effect from
PENSIONS PROTECTION FUND (PPF)
The Pensions Protection Fund has published a guide to PPF levies for 2005/06. These levies apply to defined benefit schemes and will be in two parts:
An initial levy of £15 for each active member or pensioner (including spouses and dependants) and £5 for each deferred member.
An administrative levy based on the number of members in a scheme, ranging from £24 per member for a scheme with less than 12 members to £0.74 per member for a scheme with over 10,000 members.
THE PENSIONS REGULATOR
From
SCHEME RETURNS
At the end of June 2005 The Pensions Regulator (TPR) sent out scheme return forms to 8000 occupational pension schemes. The returns asked for basic information including the scheme type and status, membership, details about trustees and advisers, financial information and details about participating employers. The trustees had eight weeks, until the end of August, to complete and return the forms. For the PNPF it was a bit like trying to put a square peg in a round hole given the uniqueness of the Fund.
CIVIL PARTNERSHIP ACT
From
Partnership Act will come into effect. This Act will bring with it a package of rights and responsibilities very similar to the legal status of married couples. Pension schemes will be required to provide survivor’s benefits for members of civil partners. Legislation prohibiting discrimination on the grounds of sexual orientation will be amended so that civil partners must be treated in the same way as married couples. In addition pension sharing orders will be available for civil partnerships that end.
MONEY PURCHASE (DC) SCHEMES OUTNUMBER
FINAL SALARY (DB) SCHEMES
For the first time the number of Defined Contribution (DC) schemes has overtaken the number of still open Defined Benefit (DB) schemes according to a survey published by Hewitt Associates.
The survey covered approximately 350 schemes and showed that 32% of organisations now offer DC compared to 28% with a DB scheme that was still open. 29% have a final salary scheme closed to new entrants while the remaining 11% consisted of schemes closed to further contributions and various forms of hybrid schemes.
An alarming trend is that fewer than 50% of employees covered by DC schemes actually contribute anything themselves. This, coupled with the fact that employers almost always pay in much less than under DB schemes, means that amount of money being put aside for the next generation of pensions is falling sharply.
Debbie Marten
PENSION NEWS 07/05
PENSION NEWS
The Secretariat
Richard, Vicki and I are still all here in Sevenoaks, enjoying the sunshine while working hard with the Trustees to .nalise the 2004 valuation, review the Fund’s investment strategy as well as our investment managers. All this while trying to come to grips with new pensions legislation and how it will affect the Fund means that while Sevenoaks may be somnolent the Secretariat certainly is not.
Annual Report & Accounts 2004
The Trustees’ Annual Report & Accounts for year ending
Valuation as at 31 December 2004
The results of the 2004 valuation showed that the current contribution rate of 21% was not suf.cient to cover active members’ future accrual of bene.t. To bring the underlying contribution rate down to the rate actually being paid and to minimise the impact on members the Trustees have decided to raise the normal retirement age for Existing Members (pilots who joined before 08.08.2002) from 60 to 65 for bene.ts accruing after
This does not affect bene.ts accrued to 31.07.2005, but means when your pension becomes payable it will be paid in two tranches; the pension based on service to 31 July 2005 which will not be subjected to a reduction from age 60 onwards and the pension based on service from 1 August 2005 which will be discounted by such amount as the Actuary shall determine, if taken prior to age 65.
Investment Review
In conjunction with the triennial valuation the Trustees are in the process of reviewing the Fund’s investment strategy which may involve a change in asset allocation and/or investment managers. It is a case of watch this space!
OTHER HOT TOPICS
I though I would devote part of this article to a brief synopsis of the other topics exercising the minds of the pensions’ industry at the current time.
COMPULSION
Adair Turner, Pension Commission chairman, speaking at a recent annual dinner said the government must set up a fully funded compulsory pension scheme, which is his clearest hint yet that compulsion will be part of his .nal report in the autumn. Whereas the Prime Minister has reiterated Gordon Brown’s statement that compulsory pension saving will not be introduced in this Parliament.
CONSENSUS
According to David Blunkett, Secretary of State for Work and Pensions, the government, stakeholders and the general public must work together if a consensus on future pension reforms is to be achieved. Unfortunately Adair Turner claims that the major players in the pensions industry are standing in the way of reform because they cannot agree on how it should be achieved. Most bodies agree that there needs to be simpli.cation and a reduction in the ubiquitous means-testing, but are divided on how to proceed. There is also divided opinion on what the state pension age should be with some in favour of increasing it to 70 by 2030 and others like the TUC and Age Concern vehemently against. (Nothing changes)
WOMEN FACE SHORTFALL
A recent survey showed that 55% of women compared to 71% of men were contributing towards a private pension scheme for their retirement. Twice as many women than men expect to retire at 60 (some of us think 55 sounds good) while more than a quarter of the males surveyed expected to work until 65.
CITIZEN’S PENSION
The National Association of Pension Funds (NAPF) believes its Citizen’s Pension proposals would support the government’s twin objectives of encouraging saving and
extending working lives. The NAPF propose replacing the present complexity of state provision with a single, universal, .at rate payment worth at least £105 a week at current prices and rising in line with earnings. The proposed introduction date is 2010 with eligibility being determined by a simple residency test
POTENTIAL SAVERS SCARED OFF BY
WIND-UPS
Research shows that
Some 80,000
NEWS IN GENERAL
EVEN THE ACTUARIES CANNOT GET IT RIGHT
The Faculty and
RETIRING ABROAD
The House of Lords has struck a blow for Britons retiring aboard by throwing out a test case appeal by an expat to have her
Debbie Marten
Pension News 04/05
PENSION NEWS
THE SECRETARIAT
ACTUARIAL AND INVESTMENT
CONSULTANCY REVIEW
At the end of 2004 the Trustees decided to carry out a review of the Fund’s actuarial and investment consultancy provider (as far as I can ascertain this is the first one in 33 years). Invitations to Tender were sent out to the main four providers, including the incumbent Watson Wyatt, and interviews were carried out. Two firms impressed the Trustees, but at the end of the day it was Aon Consulting that the Trustees selected. So we now have a new actuary coming to grips with the idiosyncrasies of the PNPF while carrying out a triennial valuation.
VALUATION AS AT 31 DEC 2004
The Fund is currently undergoing a triennial valuation as at 31 December 2004. By mid February the valuation data had been submitted to the actuary and the draft accounts followed on a month later. It is hoped to have the preliminary results available to the Trustees by late April with an aim to finalise details in May. The Trustees will then review the present strategic investment policy of the fund in light of the changed investment climate, the Fund’s financial position and its liability profile at the end of 2004
CHANGES IN PENSIONS REGULATION
As from
The Pensions Regulator (TPR)
The Pensions Regulator will take the place of the Occupational Pensions Regulatory Authority (OPRA) set up under the 1995 Pensions Act. With the new title comes new powers. The new Regulator will build on the success of Opra, but will be more proactive and will focus its activities on the key risks to members’ benefits. These activities include:
· Protect the benefits of members of work-based pension schemes;
· Promote the good administration of work-based pensions; and
· Reduce the risk of situations arising which may lead to claims for compensation from the Pensions Protection Fund. Guidance on compliance with pensions legislation and various codes of practice setting out standards of conduct and practice will be provided by the TPR. In April two codes will take effect; on whistle blowing and notifiable events. These codes can be found on the TPR’s website http://www.thepensionsregulator.gov.uk
The Pensions Protection Fund (PPF)
This Fund applies to final salary schemes only and aims to help members of schemes when an employer becomes insolvent and the scheme does not have sufficient fund to pay the expected level of benefits. Initially the PPF will be funded by a levy on the scheme of:
• £15 for active members, pensioners and widows;
• £5 for deferred members
It is expected that the levy will double next
year
The benefits to be protected will be:
· Pensioners will receive 100% of entitlement capped at £27,778; and
· Actives and deferreds 90% of entitlement capped at £25,000
BUDGET MARCH 2005
On
· £200 Council tax refund to pensioners in 2005/06.
· doubling of the starting threshold of stamp duty land tax to £120,000.
· free off-peak bus travel for over 65s from April 2005.
· increase in Child Tax Credit in line with earnings until 2007-08.
· inheritance tax allowance to be raised by £36,000 over 3 years to £300,000.
· increased spending on education.
TAX ALLOWANCES
Single Person
Aged under 65 £4,895
Aged 65-74 £7,090
Aged 75+ £7,220
Aged income limit £19,500
Married Couple’s Allowance
Aged under 75 £5,905
Aged 75 and over £5,975
Age income limit £19,500
Blind Person Allowance
£1,610
Income Tax Bands
Starting rate 10% 0 – £2,090
Basic rate 22% £2,090 – £32,400
Higher rate 40% Over £32,400
Pensions Earning Cap
The pensions earning cap for all post April 1989 joiners of occupational pension schemes has been raised to £105,600 for the 2005/06 tax year. This cap will be superseded by legislation due to come into effect on
Civil Partnership Acts
This Act takes effect from December 2005 and from this date couples who enter into a civil partnership will be taxed in the same way as married couples.
Debbie Marten
Pension News 01/05
PENSION NEWS
This is a summary of a speech given to the UKMPA at their annual conference held in
PENSIONS CRISES
2004 has been a year of media hype and hysteria over the pensions’ crises and the Government’s attempts to restore public confidence through:
· Financial Assistance Scheme
· Pensions Protection Fund
· Finance Act 2004
· The Pensions Commission Report
And on the 18 November the Pensions Bill received Royal Assent. Most will have an impact on the PNPF, but what are they hoping to achieve?
THE FINANCIAL ASSISTANCE SCHEME
Although the Pensions Bill makes provision for a Pensions Protection Fund (PPF) to pay pensions when an insolvent employer withdraws from an underfunded defined benefit scheme, this does not come into effect until April 2005. More importantly it does not cover employers of underfunded schemes that commenced wind-up prior to this date.
It is estimated that some 65,000 members face losses of 20% or more of their pension. So after much lobbying the Government agreed to make £400 million available in a Financial Assistance Scheme to provide compensation for the thousands of workers who have lost benefits because their schemes have been wound up while underfunded prior to April 2005. This sum of money is to be spread over 20 years and this scheme is open to the industry to provide further support. According to the Government the pensions industry has an “ethical duty” to contribute towards the FAS to help restore the public’s confidence in pensions.
The design of the FAS has not been finalised, however it will be used to top-up benefits in existing schemes. The current expectation is that the legislative framework should be in place by Spring 2005 with the first payment to be made as soon as possible after this date.
PENSIONS PROTECTION FUND (PPF)
The PPF is one of the provisions covered by the Pensions Bill and is due to be launched in April 2005. It will provide “core” benefits for members of under-funded defined benefit schemes where the sponsoring employer has become insolvent. The compensation fund will cover 100% of benefits for members who have reached the Fund’s retirement age and 90% for members below that age subject to an overall cap of £25,000 p.a.
The pensions protection levy, payable by pension schemes, will comprise two elements, one based on scheme specific factors, such as the number of member and the second based on risk-related factors, such as the funding levels of schemes. In other words the schemes most likely to claim will pay more.
FINANCE ACT 2004
This Act received Royal Assent on 22 July 2004 and introduces a new simplified tax regime for occupational and personal pension schemes and will be effective from
This is the most profound overhaul of tax treatment since the establishment of formal tax approval in 1921. Eight different regimes will be replaced by one single regime. The onus will be on scheme members rather than the scheme for policing the new regime with allowances, one lifetime and one annual, replacing benefit and contribution limits
The Lifetime Allowance (LTA)
When benefits are put into payment their value must be tested against the LTA, any excess will be subject to a tax charge. The limit is the maximum amount that a member may take from all forms of registered pensions savings. The level of the LTA for the next five tax years starts at £1.5m and moves up to £1.8m for 2010/ 2011.
The Annual Allowance
In addition to the lifetime allowance there will also be an annual limit known as the annual allowance. This allowance ranges from £215,000 in 2006 to £255,000 in 2010.
For members who have already reached the LTA limit it will be possible to protect rights accrued within approved arrangements before A-Day provided the benefits are within existing Inland Revenue limits. If members have benefits in excess of these limits and the rights have not been protected then a recovery charge will be applied to the net excess.
The two types of protection are:
PRIMARY PROTECTION
This type of protection can only be used if the member’s benefits from all approved schemes of which he was a member are greater than £1.5m on ‘A’-day.
ENHANCED PROTECTION
This type of protection is available to any member with accrued benefits at ‘A’-day, however no further benefit accrual or contribution will be allowed into the pension scheme.
Members will have until April 2009 to register claims with the Inland Revenue for primary or enhanced protection.
PENSIONS BILL
The Pensions Bill received Royal Assent on
· The Pension Protection Fund (PPF) and The Pensions Regulator (TPR)
· Pension rights on TUPE transfers
· Change in Limited Price Indexation
(LPI) for defined benefit schemes
· Withdrawal of the need to provide LPI for defined contribution schemes
PENSIONS COMMISSION REPORT
PENSIONS: CHALLENGES and CHOICES
Adair Turner as Chairman of the
Pensions Commission has recently
published his interim report on the
Challenges and Choices. It looks into the adequacy of pension savings and provision in the
The interim report’s task was to describe the situation and quantify it. In the second report due out in the Autumn of 2005 the Commission will make recommendations and consider what adjustments should now be made.
PNPF SECRETARIAT
2005 will be a busy year for the Secretariat and the Trustees as well as we all come to grips with the new legislation and how it will affect the PNPF Added to this a triennial valuation is due as from 31.12.2004 so data will need to be collected and transferred to the actuary during the beginning of 2005.
Debbie Marten
Pension News 10/04
PENSION NEWS
PNPF AND THE SECRETARIAT
From November 2004 it will be a busy 18 months or so for all of us in the Secretariat and the Trustees as well. In addition to the normal day to day running of the Fund the triennial valuation is due as from 31 December 2004 and we will be working hard at providing the actuary with all the information and data he will need to calculate and finalise this valuation. Prior to this the Trustees have decided to carry out a review of the Fund’s actuary and investment consultant to ensure that the service is conducted in a manner which will provide the highest quality of advice and service for a reasonable cost. The Trustees are looking for cost effectiveness. If the review results in a change of advisor(s) then it is anticipated that they will be in place prior to the 2004 valuation. We will have just sorted all this and the Finance and Pension Bills heave into view with some changes needing to be implemented by April 2005 and others by April 2006. Once these legislations have been well and truly signed, sealed and delivered then the Trustees will have to decide what amendments will need to be made to the PNPF Rules and these will subsequently be communicated to all members.
We have begun the process of identifying members that may be adversely affected by the new legislation and I am pleased to say it is very few.
I am sure that by the time summer 2006 comes around we will all heave a collective sigh of relief.
RUMOURS
PNPF Benefit Changes
This brings me neatly to some rumours that have reached our ears regarding changes in the PNPF benefits. Some members appear to be under the misapprehension that changes are going to be made in anticipation of the results of the 2004 valuation. The only pre-emptive strike the Trustees are looking at making prior to the valuation results being finalised is to look at alternative investment classes and how they might add value and reduce risk for the Fund. The Trustees have not taken any decision to change benefits.
Pension Bill
Instead of being the panacea to
complicated and inflexible pension
legislation this Bill appears to be increasing in size and complexity. There is likely to be a further 100 sets of statutory instruments added to it, and it already includes 300 clauses, before it receives Royal Assent. In a recent article, Alan Pickering, the author of the Simplification Report urged ministers to scrap the Pensions Bill as it was a ‘dreadful’ piece of legislation.
So perhaps the rumour that the Pensions Bill will be scrapped to make way for new laws to ban fox hunting are true. Although most commentators say it would be political suicide for the Government to drop the Bill now.
PENSION PROVISION
During a recent television interview, Alan Johnson, the new work and pensions secretary, dismissed the calls to increase the age of retirement and described compulsory membership of schemes as a “very complex and difficult issue”. Mr. Johnson said that the government wanted to encourage people to retire later by offering greater flexibility rather than increasing the pension age to 70 as called for by the Confederation of British Industry. What makes you think a general election is due soon?
NEWS IN BRIEF
First PPF Chair Appointed
Lawrence Churchill, currently Chief Executive of Life business at Zurich Financial Services has been appointed to chair the board of the Pension Protection Fund (PPF).
Financial Assistance Scheme
The Department of Work and Pensions has announced the provision of a Financial Assistance Scheme worth £400 million to provide compensation for workers who have lost their pension benefits when their employers wound up their pension schemes.
Final Salary Schemes Closure Slowing
According to recent research the rate of final salary schemes closure is slowing as more employers take actions to retain plans on a more cost-effective basis.
TUC Threaten Further Strikes
The trade unions are threatening more strikes to defend pension benefits unless radical steps are taken by the government to halt the growing pension crises.
Early Retirement
Despite the current pension crises and increasing restrictions placed by employers on early retirement, members of final salary pension schemes continue to retire early. A recent study revealed that the average age for leaving work early fell from 61 in 1985 to 59 in 2003. Among defined benefit scheme members in 2003 59% of men retired under the age of 60 compared to 45% in 1985, whilst among women 60% of those who retired in 2003 were under age 60 as compared to 45% in 1985.
Debbie Marten
debbie@pnpf.co.uk
Pension News 08/04
PENSION NEWS
PNPF AND THE SECRETARIAT
By the time you read this article we will have been at Sevenoaks for almost a year –
I know they say time flies the older you get, but this is ridiculous. I am very pleased to say that a few of our pensioners have found us and dropped in. We run an open door policy so if you are in the area please pop in.
ANNUAL ACCOUNTS 2003
The Trustees’ Annual Report and Accounts for 2003 were sent to all active members in July. If you have not received your copy and would like one please contact the Secretariat and we will get a copy off to you pronto.
EARLY PAYMENT OF DEFERRED PENSIONS
At the meeting held on
CERTIFICATES OF EXISTENCE
Following the annual audit of the 2003 accounts the auditors recommended that the Fund carry out a pensioner verification exercise and in April Certificates of Existence were sent out with the P60s. I know that none of us (me included) like to complete what we consider superfluous forms, so a very big thank you for those of you who have returned your completed forms. When the exercise was carried out in 1997 we had a 100% return rate and your co-operation in maintaining this unblemished record is greatly appreciated.
P60s FOR YEAR ENDING 5 APR 2004
The P60s for the 2003/04 tax year were sent out in April and if you have not received your copy please notify the Secretariat. Under current legislation we are unable to issue duplicate copies, but we can confirm the year to date figures in a letter for Inland Revenue purposes.
CHANGING THE RETIREMENT AGE
Having been away on holiday for the past few weeks I have come back to .nd that the current hot topic in pensions is the issue of the retirement age – should it be 65 or 70 and whether it should be compulsory.
In the media this issue has provoked headlines such as ‘work till you drop’ and ‘millions have retirement plans ruined’. Yet Alan Pickering, a partner at Watson Wyatt believes it is a “win-win” situation and a positive step for everyone, as individuals need not be pensioned off in their prime and it takes some pressure off the pension system. As having a compulsory age of 70, but paying benefits at age 65 could help employees mix pension and paid income while they gradually work down from full-time employment.
For those of us who do not want to work longer (most of us) the freedom to carry on working does not mean that we have to. The real issue is being able to afford to retire when we want to.
COMPUTER UPGRADE
At the time of writing this article the Secretariat is having its computer equipment upgraded to drag us into the 21st century. I sincerely hope that by the time you read this all the glitches have been cleared and we are back to our usually efficient selves and that no-one has been inconvenienced by this upgrade.
PENSIONS BILL
The Pensions Bill is currently making its way through Parliament and should receive Royal assent in November at the latest. During the course of its passage through Parliament it has been subject to quite a few amendments particularly in respect to strengthening the security of pensions. Once the details are finalised I am sure the Bill will be the subject of future articles in this magazine, as its proposals will affect us all.
MEMBERSHIP STATISTICS
Although membership and beneficiary statistics are published in the Pilots’ National Pension Fund Annual report and Accounts, it might be of some interest if I were to include them from time to time in these articles.
The position at the end of January 2004, updated with the changes over the following three months are shown below. Enjoy the summer!
Debbie Marten
Pensions News 04/04
ANNUAL BENEFIT STATEMENTS
You will have received your PNPF annual benefit statement for 2003 within the last couple of months and we have had a few telephone calls on various items of information so I thought it might be helpful to clarify a couple of points. Inland Revenue maximum benefits At present your overall pension at normal retirement cannot exceed 2/3rds of Final Remuneration. Final Remuneration can be calculated in several ways and, in a majority of cases will be higher than your Final Pensionable Earnings. It is possible, therefore, in a few cases where your total pensionable service exceeds 2/3rds, that your pension at normal retirement age will have been “restricted” and will be less than the sum you were expecting. Do not let it worry you. The new “simplified” tax regime that is due to be implemented in April 2006 will probably override this restriction. Earnings used in the calculation of pension benefits and death in service lump sum. Very occasionally we find that pensionable earnings show a gradual decline over several years and so Final Pensionable Earnings remain constant for some time. As you know your pension is based on the average of the best three consecutive years out of the last ten. The lump sum payable in the event of death in service, however, is based upon the best single year’s pensionable earnings figure out of the last three, or if higher, your current Final Pensionable Earnings. Therefore, if your pensionable earnings have fallen for more than three years you might notice a reduction in the death in service lump sum. Either that or that it remains constant if the previous year’s earnings are higher.
REVIEW OF FACTORS
The Trustees, in conjunction with the Actuary, have recently completed a review of the factors used by the PNPF and from 10 February 2004 agreed to adopt the Actuary’s recommendations in respect of the factors used for early retirement pensions and the conversion of AVC capital to pension. The factors for existing and new members will remain unchanged down to and including early retirement at age 54, thereafter a 4% p.a. reduction would apply. A distinction will now be made between active and deferred members taking early retirement whereby existing members will have their pension reduced by 6% down to and including age 55, thereafter by 4% p.a. to age 50. New members (pilots who joined after 08.08.02) will have their pensions reduced by 4% p.a. down to age 60, by 6% p.a. down to age 55, by 4% p.a. to age 52 and thereafter a 5% p.a. reduction would apply. The AVC conversion factors have been amended in accordance with the Actuary’s proposals to bring them back to a cost neutral basis.
BUDGET MARCH 2004
On 17th March 2004 the Chancellor delivered his Spring Budget Report. The Chancellor described his budget report as “Prudence with a purpose”, but most commentators considered it a political budget with the clear aim of getting the government re-elected. Nonetheless there is something for all of us in the budget report, but of particular significance are the final proposals by the Government in respect of tax simplification for occupational pension schemes. Simplification of the tax rules on pensions The simplified (there is a misnomer if ever there was one!) regime will come into force on 6 April 2006. At this date all existing pension tax regimes will be replaced by a single universal regime. The implementation date is a year later than originally intended, but will, at least, give all concerned a bit more time to plan for the proposed changes. The Lifetime Allowance (LTA) under the new regime has been confirmed as £1.5m and not the £1.4m originally proposed. The LTA will apply to an individual’s pension savings from all sources. This limit will be increased by steps to £1.8m by 2010. The LTA will be reviewed every five years thereafter. Similarly the annual contribution allowance has been confirmed at £215,000 rising by steps to £255,000 by 2010. This is the annual amount of contributions payable by the employee and employer to all defined contribution arrangements.
PENSIONS EARNING CAP
Until the new regime is implemented we are still stuck with the pensions earning cap which has increased to £102,000 from April.
TAX ALLOWANCES
Personal allowances for those aged under 65 for the new tax year will increase in line with price inflation. Single Person Aged under 65 £4745 Aged 65-74 £66830 Aged 75+ £6950 Married Couple’s Allowance Aged under 65* £5725 Aged 75 and over* £5795 *The married couple’s allowance is only available to couples where one spouse was born before 6 April 1935 and reduces the tax bill by 10% of the amount of the allowance, but not below £2210 if the husband has income above the age income limit. The income limit for age-related allowances was raised to £18,900. The threshold for inheritance tax has been raised to £263,000. Basic State Pension The basic State pension has increased in line with price inflation, by 2.8%, with a minimum annual increase of £100. Single Pensioner £79.60 p.w. Married Couple £127.25 p.w. Deferring State Pension To encourage people to retire later the Chancellor has confirmed that from April 2005 individuals who defer taking their state pension will receive increments of 1/5th of one per cent for each week of deferral (10.4% p.a.) As a further incentive, individuals who defer their state pension for at least one year will be able to take the deferred instalments as a taxable lump sum. The payment will be taxed on the member’s marginal rate and not move the member into a higher tax rate bracket as a consequence of receiving the lump sum. Council Tax Payments Households where at least one person is over the age of 70 will receive a £100 payment to help with council tax. This benefit appears to be available from 2004/05.
My beautiful Bumbles’ antics are no more, she could not wait ’til Spring and slipped away from me on March the 1st.
Debbie Marten Debbie@pnpf.co.uk
PENSION NEWS 01/04
PENSION NEWS
This is a summary of a speech given to the UKMPA at their annual conference held in
Thank you
PNPF and the Secretariat
Compared to 2002, 2003 has been a relatively quiet year for the PNPF and the Secretariat with the Government only managing to produce one white paper in response to two green papers issued in December 2002 and one curve ball from the Trustees in the form of relocating the office.
We have now settled into our new offices and a comfortable routine, although so far
no one has felt like a visit to the ‘sticks’ to see if we really are here. If you do drop in
use the side entrance unless you want your teeth seen to as the ground floor is occupied by a dental practice. The first three months of 2003 saw a fall in the stock market which hit the fund quite badly, but the downward spiral had been reversed by the second quarter and the Fund had reached £316.23m at the end of October 2003 – a rise of 6.14% since the end of March.
Occupational and Personal Pension Schemes (Disclosure of Information) amendment Regulations”
This longwinded new regulation means that from 6 April 2003 annual forecasts know as Statutory Money Purchase Illustrations (SMPIs) came into effect. These illustrations affect the Additional Voluntary Contributions Scheme and will be produced by the scheme providers. The SMPI focuses on the projected pension at retirement age expressed in real or today’s money terms. They will be covered in caveats as to why the eventual benefit received may differ from the illustration. The theory behind the SMPI is to promote better understanding of money purchase arrangements and assist members in targeting for their retirement. In reality they may have the opposite effect.
Working and Saving for Retirement: Action on Occupational Pensions”
June saw the publication of the Government’s white paper – “Working and Saving
for retirement: Action on Occupational pensions” in response to the two green papers, “Simplicity, security and choice: working and saving for retirement” and the more radical “Simplifying the taxation of pensions: increasing choice and flexibility for all” published in December 2002.
In the white paper the Government has outlined its plans to address the ‘pensions crises’. The approach is basically threefold:
· Protecting Employees on scheme wind up
· On change of jobs
· Funding and Benefits
PROTECTING EMPLOYEESON SCHEME WIND UP
The Government proposes increased protection of benefits whether or not the employer is solvent. This is a direct result of a number of high profile winding up cases over the last 18 months.
From 11 June 2003 for any solvent employer winding up his pension scheme the employer-debt provision will be extended to cover the full cost of buying out all liabilities. The debt calculation will include increases to pensions in payment and revaluation of pensions in deferment. A compensation scheme known as the Pensions Protection Fund (PPF) is proposed. This will be run by a statutory body and will be used to secure 100% of pensions in payment and 90% of working or deferred members’ accrued benefits should an underfunded scheme be wound up. The cost of the PPF will be met by a flat rate levy on all employers with defined benefit pension schemes. In addition to this there will be a ‘risk based premium’ which will reflect the funding of the scheme. Changes to the statutory priority order on wind up are proposed to provide extra protection to long serving members in that increases to pensions in payment will come after other members’ basic entitlement. This will apply whether or not the employer is solvent.
ON CHANGE OF JOB
Members with as little as three months services will be entitled to take a transfer out of their funds as an alternative to a refund of contributions.
FUNDING AND BENEFITS
· The Minimum Funding Requirement (MFR) is to be replaced by the application of scheme specific funding (SSF), based on advice from the actuary and will be set out in a Statement of Funding Principles (SoFP).
· The cap on Limited Price Indexation (L.P.I.) increases has been reduced from 5 to 2.5%.
· The Government wishes to simplify the administrations of Guaranteed Minimum Pensions (GMP) and is continuing to consult on this area.
· In addition to the changes mentioned above:
· In future Trustee Boards will need to ensure that at least one-third of the trustees are nominated by the membership.
· The New Kind of Regulator (NKR) will take a more active role in protecting pension benefits and will produce guidance in order to ensure that trustees have sufficient knowledge and skills to fulfil their responsibilities.
Funds will no longer be required to provide an Additional Voluntary Contributions Scheme facility and membership of schemes will not be compulsory.
It is also proposed to raise the age from which a member may take voluntary early retirement from 50 to 55 as from 2010. The Government published the second stage of its Pensions Simplification proposals on 10 December 2003 and consultation on this draft will close on 5 March 2004 and an announcement is expected to be made in the 2004 Budget. If introduced the new (simplified!?!) regime would take effect from 6 April 2005.
Debbie Marten
Debbie@pnpf.co.uk
PENSION NEWS 10/03
PNPF AND THE SECRETARIAT
The changes continue, the Secretariat has moved. I have to confess that it was with mixed emotions that I left
AVC SCHEME
The Additional Voluntary Contributions Scheme renewal went smoothly this year with only one or two late submissions. As I write this article Richard is in the process of compiling the paperwork for onward submission to the appropriate providers. 1st October was the start of the new Additional Voluntary Contributions Scheme year and once the employed members’ September contributions are sent Equitable Life and Norwich Union should commence preparing the annual benefit statements for all members.
We hope to be in a position to send out the AVC benefit statements by the end of November, but this will depend on when they are received (there was a problem with Norwich Union last year) and the accuracy of the information.
STATUTORY MONEY PURCHASE ILLUSTRATION
There may be an additional hold up in that as from 6 April 2003 new regulations require pension schemes with a money purchase element, i.e. the Additional Voluntary Contributions Scheme, to produce illustrations of the pensions their members are likely to get. The Government’s reasoning behind this is to encourage people to save more, in reality it may have the opposite affect.
This is known as a Statutory Money Purchase Illustration (SMPI) and will be produced by the Additional Voluntary Contributions Scheme provider. As it is yet another piece of paper they are required to produce it may result in delays. (I am beginning to sound like Connex Southeast!)
INLAND REVENUE – PENSIONS
SHORTFALL
It appears that the Inland Revenue has failed to warn millions of workers that they have not paid enough National Insurance Contributions (NICs) to receive a full state pension. The Inland Revenue has blamed staff shortages for this failure and over the coming year they will be writing to many of those affected. Many of those affected will need to pay a top-up contribution of £1600 to avoid a shortfall in their state pension.
Many of those who have not paid sufficient NI Contributions are thought to be on low incomes and they will need to consider whether it is worth paying expensive additional NICs, when the government has introduced the minimum income guarantee (MIG), which is replaced in October by the pensioner credit.
Women are not required to pay NI contributions after the age of 60, but the threshold is 65 for men. Men who retire between the ages of 60-65 can get so-called ‘autocredits’ to boost their contribution record, but if they return to work they will have to pay NI contribution as usual. If you think your NI contribution record may be incomplete, you may request a pension forecast by filling in form BR19, which is available from the Benefits Agency.
Pension Watchdog
The Occupational Pension Regulatory Authority (OPRA) has confirmed that there will be a more powerful pensions watchdog as suggested in last year’s Green Paper. The bad news is it will not happen for another two years
Expat Pensioner loses Case
The British pensioner living in
The Court of Appeal upheld the
British Government’s right to deny pensioners living in certain countries the right to increases on their state pension even though they have a full National Insurance Contributions record.
Well wasn’t it a glorious summer and most weekends would find me in the garden reading a book. It proved a little too hot for Bumbles, though, and even though I could coax her out for a few minutes she soon retreated to the cool of the dining room. Still by the time you read this it will soon be Christmas and Bumbles will have to relearn the route around the Christmas tree, if she is anything she is adaptable!
Debbie Marten
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