Pension Regulator Now Fining Firms for Not Being Ready for Auto-Enrolment

The amount of companies being fined for not implementing the auto enrolment scheme for workplace pension is now on the increase.

The Pensions Regulator has announced that during the last quarter of 2014, 166 smaller firms had been fined £400 for not being ready in time to enrol their employees into a company pension.

Prior to this, just three firms had been penalised.

The announced doesn’t come as much of a surprise as more and more medium sized company are included in the scheme, and as the scheme continues, reaching down to very small companies with just a handful of employees, this number is bound to increase vastly.

The auto-enrolment scheme began in 2012, when the Coalition announced that all private sector employees over the age of 22 and earning more than £10,000 per year would be automatically be entered into a workplace pension. It was then down to the employee to ask to be withdrawn if they didn’t want to continue saving in this manner.

It is hoped that around 10 million employees will be paying into a workplace pension for the first time once the project is complete in 2018.

The scheme started with large companies who employed more than 150 staff and the take-up was extremely positive with approximately 9 out of every 10 workers continuing to pay into the scheme.

Towards the end of 2014, the scheme was extended to smaller companies who employ between 62 and 149 people.

To date, more than 43,000 companies have their staff enrolled into the new workplace pension schemes, and another 32,000 will be included by the end of the financial year.

Companies are required to submit a declaration of compliance to the Pensions Regulator five months before their given start date, and so far 166 companies have not got this official document in place in time.

From the end of the year towards 2018, a further 770,000 small and micro companies will be expected to join the scheme, as the initiative works down towards the smaller companies, often who only employ a handful of people, it is more likely that vital paperwork will not be filed in time and more fines will he handed out.

Financial Conduct Authority Insists Pension Providers Warn Savers of New Freedom Pitfalls

Pension providers have been told by the City Watchdog to warn pension savers of depleting their pension pots too soon.

The Financial Conduct Authority (FCA) has told pension companies that it must inform any defined contribution pension holders of the risks of not budgeting their pension fund to last throughout their entire retirement.

As of April 6th, anyone aged 55 or over will be able to access their defined contribution pension fund as they see fit, meaning they don’t have to purchase an annuity product which would give them a guaranteed income for the rest of their life.

Whilst many pensioners are bound to make wise decisions when it comes to their retirement finances, the FCA worries that many will make rash decisions about investments or simply spend too much of their pension that will leave them reliant solely on the state pension for much of their old age.

The FCA want pension providers to alert savers of the tax implications of withdrawing large sums of money from their pension pots, and also to question them about their lifestyle choices and general health so they can estimate how long they are likely to live for and how long their pension fund has to last.

Many industry experts are concerned that savers will take advantage of the ability to get their hands on large sums of cash, but not be aware of how much they will have to pay in income tax.

Also, it is expected that many fraudulent companies will appear over the next few months, offering ‘too good to be true’ investment opportunities that will plunder savers’ nest eggs and leave them with extremely high administration charges and tax bills with very little, if any, return on their initial investment.

Pension providers have been tasked to help ensure that savers are aware of the potential pitfalls of being able to manage their own pension pots, they are also expected to inform savers of the Governments guidance scheme where general advice about the new pension reforms can be given out over the telephone, online or in person via the Pensions Advisory Service and Citizens Advice.

The guidance service will not be able to offer a tailored financial plan for individuals; it will only provide a basic background into how the new system will work. Anyone seeking further advice will need to employ the expertise of an independent financial advisor.

However, the FCA only regulates the private pension sector. Workplace pensions are currently regulated by the Pensions Regulator who has up to this point not put in place any similar demands on pension providers.

It is expected that within the first few months of the reforms coming into effect, up to an additional £6 billion will be withdrawn from pension pots in the UK.

Many over-55s have said that would take advantage of the new rulings and use some of their pensions as cash to either help out family or to pay for high value one-offs such as home improvements, a new car or a luxury holiday.

The concern is that many will not realise that a large withdrawal from their pension funds may take them into a higher tax bracket.

In addition to the FCA wanting to alert savers to any potential tax bills or scams they may fall foul of, the body also wants pension providers to ensure that their pension holders disclose their health situation and marital status so if they choose to buy an annuity they buy one that offer the best value for them.

Thousands of over-55s each year lose out on their retirement income because they buy the first annuity they are offered by their pension provider.

Often if they are in ill health or are heavy smokers, they qualify for an enhanced annuity because their life expectancy is shorter.

In addition, many people fail to realise that buying the wrong annuity could leave their spouse without any retirement income if they die first.

The FCA wants to ensure that anyone wanting to purchase an annuity has all the relevant facts and knows they can shop around for the best deal rather than have to take the annuity their pension provider offers them.

All Members of the Monetary Policy Committee Vote to Keep Interest Rate the Same

The Bank of England’s Monetary Policy Committee (MPC) has decided unanimously that the interest rate will remain at its record breaking low of 0.5% for another month.

Previous months have shown that two of the MPC; Ian McCafferty and Martin Weale, had voted to increase the interest rate to 0.75% to help increase stimulus in the economy.

Whereas January’s meeting shows that all 9 members voted to keep interest at the five year level of 0.5%.

Both Mr Weale and Mr McCafferty were concerned that the low inflation rate would become entrenched if the interest rate were to rise, and that an rise wasn’t in the economy’s best interest at this time.

In December the Consumer Prices Index (CPI) rate of inflation fell from 1% to 0.5% to its lowest level since 2000 and even further away from the Bank of England’s own target of 2%.

With fuel prices continuing to drop, with a knock-on effect to other areas such as heating bills etc, many feel that inflation will fall even further over the coming months and may even become negative.

The minutes of the MPC meeting show the Bank thought it was 50-50 as to whether inflation would become negative before the middle of the year, although it felt it would be a temporary measure that would right itself once the price of oil started to rise again.

However, whilst the Governor of the Bank of England, Mark Carney warned of negative inflation, he stressed that interest rates may begin to rise later in the year, although not as quickly as many financial experts had previously predicted.

Most economists have now revised their timescale, with many doubting the interest rate would change until early 2016.

The Bank has said that it would focus on wage growth before it looks to raise the interest rate.

Data published by the Office for National Statistics shows that wages have risen faster than inflation for the past three months and would continue to do so while ever inflation remained so low or go into negative.

Previously the Bank had said it would look at unemployment rates to decide when to raise interest rates, but unemployment now stands at 5.8% – much less that the target of 7% set by the Bank of England.

Third of People Expect to Have to Use Pension Fund to Help Out Family

According to a recent survey, many people who plan to take advantage of the new pension freedoms that will come into effect in April will use their nest egg to help out family members.

The research conducted by Scottish Widows in conjunction with YouGov, shows that far from buying Lamborghinis as suggested by the Pension Minister, Steve Webb, around a third of pension savers will be helping out both younger and older relatives with their pension funds.

From this April anyone with a defined contribution pension can access their pension fund and withdraw as much or as little cash as they please. Currently a person needs to buy either an annuity product – which gives the pension holder a guaranteed income for the rest of their lives, or a drawdown product in which a set amount of the pension is released each year and the rest left investing in the fund.

The Scottish Widows survey of 2000 adults shows that around half of the people questioned felt the new relaxed rules would mean family members became more financially reliant on them.

Surprisingly almost 1 in 4 said they thought the new rules would mean that many pensioners wouldn’t be able to make their pension pots last throughout their retirement, whereas 30% said they felt that the new reforms meant that people would be able to better manage their finances in later life and they would be less reliant on others in old age.

The ‘Centre for the Modern Family’ questionnaire discovered that approximately 20% of people surveyed will use some of their pension pot to help family out with large financial commitments such as a deposit for a house or university fees.

This rose to 25% of people who had adult children who were still living at home, or ‘boomerang children’ who had left home, but return due to not being able to afford to live outside of the family home.

22% said they would probably use some of their pension pot to help out older relatives with care homes or other services to help make their lives easier.

However, those who choose to withdraw large sums of money from their pension pots to help out family with large expenses could well discover the move puts them into a higher tax bracket, as only the first 25% of any withdrawal from the fund is tax-free and the rest taxed at the relevant income tax band.

NS&I Launch New Pensioner Bonds

The Government has announced that its Pensioner Bonds will be available as from today through the National Savings and Investments (NS&I).

The bonds offer high interest rates which beat high street bank and building society savings accounts and ISAs.

The bonds, which have been named ‘65+ Guaranteed Growth Bonds’, are only available for those aged 65 and over and are expected to move quickly.   ns&i

There are two different types of bond available: the first is a one-year bond which offers an interest rate of 2.8%, and a three-year bond which offers a 4% interest rate.

Both bonds require a minimum investment of £500, and the maximum that can be invested in either bond is £10,000 per person.

The NS&I has set aside £10million for the bonds and several millions of over-65s are expected to take advantage of the offer. Financial experts have predicted that this amount will have been exhausted in a matter of weeks, so is urging those interested in investing to act fast.

Thousands have already attempted to apply for the bonds, jamming phone lines and bringing the NS&I website to a crawl, however people are urged to keep trying or to leave it a day or two and try again.

The one-year bond at 2.8% beats the nearest rival on the high street by almost a percent in terms of interest paid on investment, whereas the three-year bond at 4% is substantially better than the next best high street offer of just 2.5%.

Couples over 65-years-old may both invest the maximum amount with the knowledge that if one dies before the end of the term, ownership of the bonds will pass to the other partner.

Whilst the Pensioner Bonds will be subject to tax for most investors, they are still a better alternative to the leading ISAs currently available for investors on the basic tax band. Those on higher tax bands will find that ISAs offer a better deal, but they offer a good return on investment if they want to invest more than the ISA’s maximum allowed.

For a person paying basic rate tax, the bonds will pay out an after-tax return of 2.24% or 1.68% for higher tax band payers, compared to the best performing ISAs at 1.85%.

The three-year bond will offer an after-tax return of 3.2% for those who pay a basic tax rate and 2.4% for those on a higher rate, compared to 2.5% from the best performing ISA.

All investors will benefit from higher rates than the current best cash ISAs which stand at 1.65% for a one-year fixed rate and 2.15% for a three-year fixed rate from Virgin Money.

As with most bonds, the interest will be paid when the investment matures and if you wish to access the money earlier then you will lose some of all of this interest.

Pensioners who don’t pay tax will need to reclaim the tax taken from the interest from HMRC.

Pension Minster Wants Savers to be Able to Sell Unwanted Annuities

The pension minister, Steve Webb, has proposed that savers might be able to sell their pension pot when they retire.

As part of an overhaul of the pensions industry, the Chancellor, George Osborne announced in the 2014 spring budget that workers who had a defined contribution pension would be able to access their entire pot once they reached the age of 55.Buy Lasix piggy-bank

From this April, a saver will be able to withdraw as little or as much as they choose from their pension pot, without having to purchase an annuity.

However, any withdrawals on their pension pot will be subject to income tax at the appropriate rate.
Steve Webb would like to see this service extended to include annuities already held by pensioners. Whilst the idea hasn’t yet been formalised, the Liberal Democrat minister said that plans were currently being looked at by the Department for Work and Pensions (DWP).

If successful, Mr Webb’s idea would mean that pensioners would be able to sell any annuities they own for a cash sum, rather than continue to receive the yearly income generated by the annuity for the rest of their retirement.
The cash sum could be spent as they pleased, but obviously they would be taxed on the amount they received.

The plan would suit many pensioners who purchased low rate annuities whose funds only pay out small amounts each year.

Mr Webb’s plan are unlikely to come into effect before the rest of the pension changes happen in April, but he is confident that he can get cross-party support for the idea.

Whilst the Labour party have agree in part with some of the changes to personal and workplace pensions, they have expressed concern that completely removing the necessity to purchase an annuity – which guarantees an income for life – could lead to many pensioners mismanaging their pension pots and having to live solely on the state pension in later life.

In contrast, the Coalition has felt that people should be free to make their own financial decisions with their pension pots and would show due diligence when planning their retirement finances.

Gogglebox Stars to Star in Pension Advice Video

Pension providers, Standard Life have taken the surprising decision to enlist the help of two stars of the reality TV show, Gogglebox.clomid dosage

Standard Life discovered that approximately three-quarters of people aged between 50 and 65 didn’t fully understand the new pension changes, so decided that it would tackle the issue by recruiting posh couple, Steph and Dom from the show to help to simplify things.motilium 10

Filmed in a pub in North London, the renowned tipplers sit and chat to people about their retirement plans, with drink in hand obviously! goggle-m_1929798a

With almost three million viewers each week, the Gogglebox show has been a huge success. Gogglebox is a simple formula, whereby viewers watch ordinary people from a cross-section of society watching some of the week’s most popular television programs and their opinions of the shows.

Whilst the concept of watching people watching telly may sound strange, the diverse mix of characters and their views on the shows they watched has helped the program become incredibly popular.

The video for Standard Life shows Steph and Dom chatting in an informal manner to other pub goers about important aspects of retirement and how they plan to spend or invest their nest eggs to provide financial security in later life.

They help people to understand the changes to pensions that will take place in April 2015, as well as explain some of the jargon associated with pensions.

Standard Life ran a survey which showed 25% of people approaching retirement age were unaware of changes to the way pension pots may be accessed, and 78% didn’t understand how the changes would affect them personally.

With only four months to go before the pension reforms come into effect, it is of paramount importance that anyone planning on retiring in the next few years fully understands the changes and what it means for them.

By using high profile people to cut through some of the jargon and complications surrounding pension choices, Standard Life hope that more people will be armed with the information they need to make the best financial decisions for their retirement income.

The Government has promised to a guidance policy in which those coming up to retirement can have the choices available explained to them, along with the tax implications of their choices.

The Citizen Advice and the Pensions Advisory Service will offer face to face and online guidance. However, the guidance given will only be general and will not be tailored to the individual.

As always, we recommend that anyone approaching retirement seeks the services of an independent financial advisor before making any potential life changing decisions.

Triple Lock Guarantees State Pension Increase of 2.5%

It has been announced that the basic state pension will rise by 2.5% from next April, going up to £115.95 a week from the current £113.10.

Under the triple lock guarantee, the Coalition have promised to increase the basic state pension each year by either the rate of inflation, average pay increase or 2.5% – whichever is the highest.

With inflation currently at 1.2% and the average pay increase at 0.6%, pensioners look to have received good value with a 2.5% increase to their basic state pension.

Whilst many financial experts have criticised the ‘triple lock’ guarantee saying that it will be unsustainable as the population of pensioners continues to expand, all three major political parties have pledged to continue with it if they get elected next year.Inderal without prescription

The Pensions Minister, Steve Webb, said the triple lock system has ensured that pensioners will receive an extra £560 next year than if the Government had used the pay increase percentage to calculate the increase.

He went on to say that under the Coalition, the basic state pension has risen by approximately £950 each year, whereas wages had barely risen at all.

Currently the basic state pension can be topped up by the S2P and Serps systems whereby those who had paid more National Insurance contributions over their career were eligible for a higher state pension.

However, this system will end in April 2016 when the new flat rate pension will supersede it.   Anyone who has paid their National Insurance contributions for 35 years will qualify for the full state pension, which is said to be worth around £150 a week according to the Department for Work and Pensions (DWP).

Those who have paid less NI contributions will have their state pension calculated on a pro-rate system.

Statement letters are being sent out to workers due to retire over the next few years to outline how much they can expect to receive based on their NI payments.

For pensioners currently claiming S2P or Serps, their pensions will increase by the Consumer Price Index (CPI) rate of inflation of 1.2%.

PPI Warn Many Pensioners Could Make Costly Mistakes When Deciding their Financial Future

According to the Pensions Policy Institute (PPI), around 10% of people are likely to make expensive mistakes when it comes to making decisions over their retirement income.

The PPI’s study shows that around one in ten people who are due to retire over the next few years could end up losing about 20% of their possible retirement income by making incorrect choices or following bad financial advice.  piggy-bank

Complicated pension choices have made around 700,000 at risk of losing thousands of pounds by not fully understanding their options and the effects it will have on their retirement incomecheap Motilium

The PPI said that those who paid into a defined contribution pension scheme should ideal have good knowledge of how stock exchanges work and how the economy is faring. In addition they will need to understand how inflation will affect their investment and how long their retirement income will need to last.

Those who have poor numeracy skills are the least likely to get the most out of their pension investments say the PPI.

The institute expects the situation to become worse as the new pension freedom reforms come into effect in April 2015.

Currently, anyone with a defined contribution pension over the age of 55 must either purchase an annuity – where they will receive a guaranteed income for life, or have a drawdown – where they take an income each year from their pension pot and then leave the rest of the fund invested.

From next April, people will be able to access their pension funds like a bank account, but there are real concerns that many will make poor decisions with their funds, or be liable for large tax bills.

Some of the more common mistakes people make regarding their retirement income is to purchase the wrong type of annuity. Those who suffer ill health or have bad lifestyle habits such as smoking or heavy drinking should look at taking out an enhanced annuity product which will provide better pay outs than a normal annuity.

In addition, people who are married or in a civil partnership should ensure that they don’t accidentally take out a single life annuity, which if they died first their spouse or partner would no longer have a claim to the retirement income.

The new pension freedom reforms are likely to attract many bogus companies and scammers who will offer all kinds of investments to pensioners that don’t deliver, potentially taking a person’s life savings.

The PPI have found that those most at risk of losing some of their retirement income through bad financial choices are those with smaller pension pots of around £20,000 to £50,000 who have defined contribution pensions.

These people are statistically less likely to pay for independent financial advice, and also more likely to accept the first offer given to them for an annuity by their pension provider, rather than shop around for the best deal for them.

The PPI is urging people to spend a long time researching their retirement income options, taking into account how long they realistically think they may live for and how well they think they could invest their pension money themselves against getting a guaranteed income for life.

Whilst the Government is launching a guidance service in conjunction with Citizens’ Advice and the Pension Advisory Service, the advice given will only be a broad overview of the choices available and will not be tailored to the individual.

Pension Savers to Face Fines if They Don’t Inform All of Their Pension Providers of Withdrawals

Pension savers who have multiple pots could face fines when they withdraw from one pot and fail to notify the others of the withdrawal.

Small print in the new pension reforms shows that savers have just 31 days to notify other pension companies they have funds with if they make a withdrawal.clomid ovulation calculator

The rule has been included to ensure that people don’t try to avoid paying income tax on their withdrawals, but the short timescale could prove problematic for many and it is thought that many innocent pensioners will be fined.   nest egg

If they don’t notify other pension companies within the 31 days, the HMRC will charge a £300 penalty. In addition, this penalty will then incur a further £60 fine for every day after up to a maximum fine of £3,000.

Pension experts were quick to criticize the ruling, saying it was unworkable and not giving people anywhere near enough to time to track down missing pots or work in factors such as holidays and illness.

Workers who have changed employers several times over their working lives may well find that they have small pension pots that they have forgotten about, or have incomplete paperwork for. This would mean chasing around and completing their pension history before they made any withdrawal on an individual pot to ensure they don’t fall foul of the ruling.

It is expected that around 200,000 savers who have defined contribution pensions will take advantage of the new pension freedom reforms which come into effect in April 2015.

From next year, any saver aged over 55 will be allowed direct access to their pension pot to withdraw as they please, rather than have to buy and annuity or drawdown product. However, only the first 25% of each withdrawal will be tax-free and the rest will be charged at the appropriate tax band rate, and in a lot of cases the withdrawals will take them into a higher tax bracket.

The concern is that some people with multiple pots may try to get around paying large amounts of income tax by not declaring their withdrawals to other companies.

However, as the charity Age UK found out, the average person has worked with six employers over their career and a quarter of workers have no paperwork for at least one of their pension pots, particularly those where they may have only worked for a company for a short length of time and won’t have built up a significant pot.

To compound matters, millions of pensions started in the 80s and 90s are held in pension companies which are closed for business or have changed hands.

The Pensions Tracing Services estimates there is currently around £3 billion pounds held in lost or forgotten pension funds.

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