Pensions News

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.

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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 Liverpool in November 2003.

Thank you Liverpool for making me feel so welcome.

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 London, after all I had been commuting to New Premier House for fourteen years. So for those of you who did not hear me being dragged, kicking and screaming out of London we have moved to Sevenoaks.

 www.pnpf.co.uk

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 South Africa and fighting for the right of all expatriate pensioners to receive increases on their state pension has lost the latest round in her legal battle.

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

Debbie@pnpf.co.uk

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