State pensions

Advent of flat rate state pensions

The Queen's Speech outlined plans for legislation that will overhaul the state pension system for new pensioners.  The current state pension is £107.45 a week for those with a complete National Insurance record, and can be topped up to £137.35 with pension credit.  This may be replaced by a new £140 flat rate.

The flat-rate pension might only be available for new pensioners reaching state pension age on or after the date the new system is brought it, rather than the millions of existing pensioners.  This could create a two-tier system of state pension.

Increase in state pension age

The state pension age will rise to 66 for both men and women by 2020.  The Queen's Speech outlined plans to increase the state pension age further to 67 between 2026 and 2028 - affecting those aged 52 or younger now.

The speech also signalled government plans for this state pension age to continue to rise automatically in line with longevity. This could be done either through a formula linking pension age to average life expectancy, or through a regular official review.

Public sector pensions

The Queen's Speech confirmed the government's intention to proceed with the controversial reform of public sector pensions.  Measures include:

• Moving public sector pensions over to a career average scheme
• Increasing the age at which members can draw their pensions.

The government says this will make public sector pensions sustainable, with costs shared 'more fairly' between employers, workers and taxpayers.

The basic rules are:

• The employer has been given a start date for automatic enrolment by TPR
• The employer has contacted the scheme provider and reached an agreement to bring forward the start date
• The employer notifies TPR at least 1 month before the early start date enclosing the information required by TPR
• TPR will send an acknowledgment

Automatic enrolment what is it?

The government has introduced a new law to make it easier for people to save for their retirement.  It requires all employers to enrol their workers into a qualifying workplace scheme if they are not already in one.  At present, many workers fail to take up valuable pension benefits because they do not make an application to join their employer's scheme.  Automatic enrolment is meant to overcome this.

For the very large organisations the start date is initially 1 October 2012.  For smaller ones, the start dates are spread progressively, according to size, ending in April 2018.

All employers can elect to start early, from 1 July 2012, so long as they meet the rules.

To read more, please use the link below.

http://www.thepensionsregulator.gov.uk/pensions-reform/bringing-staging-date-forward.aspx

It is aimed at trustees and employers of defined benefit (DB) pension schemes who are undertaking their scheme valuations with effective dates in the period September 2011 to September 2012. It therefore applies to approximately one third of the UK's 6500 DB schemes, and about 4m of the 12m DB memberships.

It is, however, relevant to all trustees and employers with a DB pension scheme.

Trustees and employers that follow the guidance in the statement are more likely to reach funding agreements that the regulator finds acceptable without the need for regulatory involvement.

The regulator's analysis shows that most schemes and sponsoring employers should be able to meet their pension promises to members with either no change, or only small changes, to their present deficit recovery plans.

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The changes are designed to deal with the FSA's concern that in most cases a pension transfer is not in the best interest of pension scheme members.

The FSA is raising the standards on the assumptions used when a pension transfer value analysis (TVA) is made. This will make it less likely that an adviser will be able to recommend a transfer from a defined benefit pension scheme to a personal pension.

Sheila Nicoll, director of conduct policy at the FSA, said:

"In the vast majority of cases someone in a defined benefit pension scheme will not be better off transferring to a personal pension. The new assumptions will make it tougher for advisers to make the case for a transfer. As a result of these new rules, we would expect the number of pension transfers to decrease, leaving pension scheme members better off."

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The court ruling dismissed an appeal from a partner at a law firm who was forced to retire at age 65, saying the firm was right in its use of age discrimination to remove him.  The partner wanted to work until the age of 68 due to financial issues but other partners dismissed the request.

The Employment Tribunal ruled it was a legitimate and proportionate for the firm to do this.  The partner appealed the ruling and the supreme court has now dismissed his appeal.

The ruling said that all businesses will now have to give careful consideration to what, if any, mandatory retirement rules can be justified.

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The site will host a set of letter templates that will include all the details employers are required by law to convey to workers.

A set of communication materials and a 15 page guide answering many frequently asked questions are already available.

Read More.

View DWP communication materials here.

In March last year, the European Court of Justice ruled gender pricing for insurance products will be banned from December 21, 2012.  The decision will affect the way insurers price annuities, life insurance, income protection and critical-illness cover.

Stephen Gay of the ABI thinks there is a risk that the judgement will be taken into other areas such as disability or age, which could have far-reaching effects on critical illness and life insurance.

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The three core proposals to consolidate small pots are:

•  improving the current system;
• overhauling the system so a member's pension follows them when they move jobs;
• automatically transferring small pots into a low-cost provider such as Nest.

Pension providers have raised concerns over the complexity of occupational pension scheme transfers and over slow response from closed life insurers.

Research from the Department for Work and Pensions, which is based on face-to- face interviews with 15 UK pension providers, points to occupational scheme transfers being more complex and less efficient than, for example, transfers between group personal pensions.

The main problems reported with transfers are slow response of trustees to transfer requests, complexity of occupational pension scheme rules and "archaic" computer systems used to store occupational scheme details.

Read the DWP's research here.

Read more about transfers here.