4.5 million over-50s expect to work past retirement age

• Twice as many women than men expect to retire after their state retirement age
• 2.7 million over-50s keep working because they can’t afford to retire

• One in five (4.3 million) over-50s had retired but have since gone back into work
• Recent government changes to pensions leave two-fifths of over-50s believing their pensions savings will be worse off

4.5 million of today’s over-50s expect to work beyond their state retirement age by an average of just over 6 years, according to the first Working Late Index, published today by insurance, investment and retirement group LV=. Whilst more than half (55%) of this group expects to work no more than five years past retirement, a quarter (26%) believe they will work five to ten years, and a further one in five (20%) see themselves working well into their 70s or even 80s (10-20 years). Furthermore, the Working Late Index reveals that nearly twice as many women (66%) than men (34%) expect to retire past their state retirement age.

Coming just weeks after the Coalition Government announced that the state retirement age for men and women will rise to 66 by 2020, the LV= Working Late Index finds that the majority (60% or 2.7 million) of late retirees will continue working because they cannot afford to retire otherwise.

In addition, one in ten (10%) late retirees say they will continue to work in the hope that their pension will increase in value. These findings reinforce the issues raised in LV=’s State of Retirement report, published earlier this year, which revealed that cash-strapped over-50s had reduced their pensions contributions by almost £18 billion in the last year as a result of the economic crisis.

Back on the job

According to LV=’s research, one in five (20% or 4.3 million) over-50s who had retired have since gone back to work; 4% full-time, 10% part-time and 6% unpaid in the voluntary sector. Of those who have taken the U-turn from retirement back to the workplace, a third (34%) said they missed working and 32% were looking for a new challenge. Over a quarter (26%) went back to work because their pension (state and/or personal pension) wasn’t enough to support their retirement lifestyle.

Since turning 50, nearly half of those still in employment (46%) have changed the type of work they are doing. Of these, 20% are now doing something less strenuous and challenging, 9% have started their own business, and 4% have moved into voluntary work. But worryingly whether in the same or different type of work, 16% are working longer hours than they did before turning 50.

Ray Chinn, LV= head of pensions, said: ‘’Britain’s over-50s have already slashed their retirement savings by nearly £18 billion in the last year, and now it looks like many will have to continue working to ensure they have adequate income in retirement. This is not only because there is not enough in their pension pots, with 9% of over-50s saying they need to maintain an income to financially support their children. It is worrying to see that many over-50s expect to work up to 15 years past the state retirement age, and in some cases are working even more hours than they did earlier in their careers.”

Government changes to pensions leaving over-50s feeling worse off

When asked about the impact of the Coalition Government’s recent Comprehensive Spending Review, two in five (40%) over-50s said that they expect to have lower savings and income in retirement as a result, compared to just 2% who think they will be better off. While 29% are unsure of how the cuts will affect them.

The Government’s change to the state retirement age to 66 from 2020 has left 47% of people in their 50s believing they will be adversely affected. A quarter (26%) said they will now have to retire later than planned, and 21% said they will retire as planned, but as they won’t receive a state pension in the very early years of their retirement, they will struggle on a smaller income at the beginning.

Worryingly, the LV= Working Late Index shows that only 12% of the UK’s over-50s have always planned to seek advice on their retirement, but a further 7% said they are now planning on seeking professional advice about their retirement as a direct result of recent changes to the pensions system. While 9% had been planning to seek advice but are worried they can no longer afford to do so.

Ray Chinn continued: “Britain’s over-50s are continuing to feel the pressure from all angles when saving for retirement so it is not surprising that people are working later into their retirement or returning to work. Some do so through choice of course, but the majority is forced to by their financial situation.

“We urge those already close to retirement not to give up on saving at such a crucial time. These days there are far more financial options available as you reach retirement age, everything from looking at annuity options carefully (including enhanced annuities) to secure a larger retirement income, drawing an income while your pension stays invested, to releasing equity from your home. Expert advice on your financial situation can go a long way and can help plan for a more relaxed retirement.”

Source IFA Life  16/11/2010

Over 50s heading for retirement with no pension

The latest MetLife Europe survey evidence continues to point to a worsening of our pensions crisis.  Even among those closest to retirement, there is a lack of trust in pensions, as a third of workers are not saving in a pension.  People have clearly lost confidence in pensions and the situation is deteriorating. 

Saga’s recent Survey has shown that one in five over 50s are still in debt, with mortgages to pay off.  If they have no pension savings to fall back on, they will be heading for retirement poverty.  Together with those who have no pension savings, there is a serious risk that up to 3 million people will have nothing but the State Pension to survive on in retirement.

The Coalition Government says it wants to reinvigorate pensions and retirement.  There is clearly a long way to go.

Policy has failed to address this mounting crisis, despite an almost constant barrage of reforms.  Do policymakers really understand pensions?

Urgent radical reform of our state pension system is long overdue.  For the over-50s, saving in a pension scheme is often just not worthwhile, because they are caught in a trap with state benefits taking away their private pension.  The State Pension is so inadequate (a full Basic State Pension is just £97.65 a week) that nearly half of pensioners end up needing means-tested Pension Credit and other benefits in retirement.  However, if they claim these benefits, they will lose at least 40% and often 100% of their pension income.  That makes it very difficult to advise people to save in a pension, because they risk merely saving to replace benefits they would otherwise receive.

The Governments recent apparent proposal for a flat rate pension of at least £140 a week for all future pensioners with a full National Insurance record would remove this problem of means-testing and make it safe for the over 50s to save in a pension.  This kind of radical reform is essential.  Without it, we cannot hope to ensure private pensions work properly to deliver extra income for retirees.  

The proposals for automatically enrolling all workers into a modest company pension scheme will also not serve those closest to retirement well unless state pensions are radically reformed.  Policy must recognise that what matters is not just getting people to put money into a pension fund, but what they ultimately can get out of it.  Unless and until it becomes safe for everyone to save in a pension, we cannot hope to properly deal with the pensions crisis.

Source: Dr. Ros Altmann, Director-General, The Saga Group

All firms must offer pensions, government agrees

The government has agreed that all UK businesses, regardless of size, should offer a company pension scheme or enrol their staff into the new National Employment Savings Trust (Nest). 

Nest is due to start next year, with all firms joining by September 2016. 

The government says it will mean that between four million and eight million workers will start to save in a pension scheme for the first time. 

To be eligible for automatic enrolment, staff will have to earn at least £7,475 a year. 

However their contributions will be based on their income above the national insurance earnings threshold – currently £5,715. 

Workers whose earnings lie between those two levels should be able to opt into Nest and receive employer contributions as well. 

Welcome

The revised rules on Nest come in the recommendations of an independent review into the way workers should be automatically enrolled into the scheme. 

The findings of the review were welcomed by Pensions Minister Steve Webb.

“The National Employment Savings Trust (Nest) will be the new low-cost pension scheme that will be the vehicle for saving for millions,” he said.

 ”For the first time, employers will have to make pension contributions for eligible workers from 2012, ending decades of decline of membership in workplace pension schemes,” he added.

Pensions for all?

The principle of automatic enrolment of employees into pension schemes was established in the Pensions Act (2008), which set out reforms designed to make saving for retirement the norm among employees.

The key feature was that all employers should provide an adequate pension scheme for their eligible employees.

Typically, that means staff who are aged 22 or more and currently earning more than £7,475 a year – the personal allowance for income tax.

If such a scheme is not provided, then the staff will have to be automatically enrolled in Nest instead.

 Employers and employees will also have to make a minimum level of contributions, eventually amounting to 8% of income a year.

The Federation of Small Businesses (FSB) said it was disappointed.

“The proposed changes are still complicated for micro businesses to put in place,” said Mike Cherry of the FSB.

 ”The cost and time spent on administrative work will damage micro firms – those with 10 employees or less.”

Temporary staff

Employers will be given three months’ grace to enrol their staff in either their own scheme – with compulsory minimum employer contributions – or enrol them in Nest instead.

 This element was welcomed by the British Chambers of Commerce (BCC).

 ”Thanks to the 12-week exemption, companies with a high turnover of staff or a large number of seasonal workers will not have to spend a lot of time and money enrolling employees into pensions that they do not intend to continue,” said Dr Adam Marshall of the BCC.

 The review says if a member of staff chooses to sign up before the three-month period elapses, companies will be forced to make contributions then as well.

 The aim is to make sure people who often change jobs can build up a pension pot for their retirement.

However Labour said the revised Nest plan, with a higher qualifying threshold and the three-month waiting period, would disadvantage low paid women workers in particular.

 ”Those that lose out are likely to be the very people that the scheme was designed to reach – namely women and part-time workers, and temporary and agency workers,” said Labour spokeswoman Rachel Reeves.

 Phased in

Nest is due to start next year, with automatic enrolment starting in October 2012, with the largest employers joining first and the smallest joining by September 2016.

 Contributions from staff and employers will also be phased in.

 Until October 2016, the minimum overall level of contributions will be just 2%, with 1% coming from employers.

 From October 2016 to September 2017, total contributions will be 5% with 2% coming from employers.

And from October 2017, the total minimum contribution level will be 8%, with employers contributing at least 3%.

The pension consultants Aon Hewitt warned that lifelong savings in Nest would probably produce only a modest pension.

“Our recent research shows us that the minimum contribution levels will deliver only a very small pension in monetary terms,” said John Foster of Aon Hewitt.

“Our projections reveal that a person earning £20,000 who starts their pension aged 30, can expect an annual retirement income of £1,973.”

 However actuaries Hymans Robertson were more optimistic.

 ”Based on UK average earnings of £25,000 a year and the 8% contribution rate we estimate employees could accrue a pension of £7,000 based on 30 years of contributions or £2,000 based on 15 years worth,” said the firm’s Lee Hollingworth.

Source: BBC News Business, 27 October 2010

Retirement planning falls by the wayside

Almost half of workers under the age of 50 do not think they are doing enough to prepare for retirement, according to Scottish Widows.

Amongst employees under the age of 50, 49 per cent admit to not doing enough now to be financially prepared for their retirement, the latest Workplace Pensions Report from Scottish Widows shows, which analysed the retirement plans of 5,000 adults.

Scottish Widows believes that employee engagement with pensions and financial education are the building blocks of a successful retirement planning strategy.

The majority of employees who are reliant on their company pension scheme, and 44 per cent said the quality of a company pension scheme is an important factor when they are considering potential employers, but the 42 per cent of employees with a defined contribution scheme did not know how much their employers actually contribute.

A further 40 per cent of working respondents said that they think employers which offer access to a pension scheme should also provide pension advice, while 55 per cent said they though they should at least be provided with general information about their company pension scheme by their employer.

The report found that amongst those who expect to receive an income from a private pension in retirement, 43 per cent were still in final salary pension scheme, with 33 per cent relying on these defined benefit schemes to provide them with more retirement income than their personal pension.

Ann Flynn, head of marketing communications for corporate pensions at Scottish Widows, said: “Despite the death of the final salary pension due to its lack of affordability or sustainability, it is clear that many people are still incredibly reliant on their employers and still believe that their defined benefit scheme will provide them with enough money to support them throughout their retirement.

“This is a worrying thought, and we would therefore encourage everyone to investigate if their existing savings are adequately covering their needs,” she said.

Commenting on the pension relationship between employees and employers, Ms Flynn said that “it is important for employers to engage with their employees to help their understanding of the benefits available to them as the individual has to take responsibility and make the correct decisions about their short, medium and long term financial planning needs

Source: Fair Investment Company Ltd, Rachell Styles 27/9/2010

47% of women do not have pension provision

Research by Baring Asset Management has shown that 47% of women who have not yet retired in the UK have not made any pension provision.

This figure has gradually been increasing year-on-year and for 2009 and 2008 was 40% and 39% respectively.

The research highlights other areas of concern:

• 22% of people aged 55 – 64 do not have a Pension
• 1 million people over age 65 still working
• 4 out of 10 people age 25 – 34 do not have a pension plan
• 1 in 3 people aged 35 – 44 do not have a pension plan

The results then go on to highlight that different areas of the UK are affected differently. Alarmingly 47% in the North West do not have any pension plan compared to that of 27% in Wales.

We can offer guidance to people on pensions and you can contact our experts on 02380 004444.

Source:  The Pensions advisery service 13/9/2010

Pension age: Ministers to speed up rise to 66

The government is to speed up plans to raise the state pension age for men to 66, possibly by as early as 2016.

Ministers will also raise the option of extending it further, perhaps to 70 and beyond in the following decades.

The default retirement age of 65 – at which workers can be legally axed by employers – is also set to be axed.

Work and Pensions Secretary Iain Duncan Smith said it was time to “reinvigorate the pensions landscape”.

Under the plans women will move to a state pension age of 66 a few years after men.

‘Talent and enthusiasm’

The coalition team running pensions policy – Conservative Work and Pensions Secretary Iain Duncan Smith and Liberal Democrat pensions minister Steve Webb – announced the proposals at a briefing in London.

Mr Duncan Smith said: “Britain used to have a pensions system to be proud of, but due to years of neglect and inaction we are left with fewer people saving into a pension every year and the value of the state pension has been eroded, leaving millions in poverty.

“We must live up to our responsibility to reinvigorate the pension landscape.

“People are living longer and healthier lives than ever, and the last thing we want is to lose their talent and enthusiasm from the workplace due to an arbitrary age limit.

We also need to recognise that to meet the challenge of providing an affordable, stable pensions system in a society with ever increasing life expectancy, people will need to work longer.”

The previous Labour government’s policy was to raise the pension age to 66 in 2024 and then gradually to 68 by 2046.

The coalition argues that this should be speeded up, eventually meaning a pension age of 70 or older.

The government also wants to scrap the default retirement age – which allows employers to shed staff at the age of 65.

Adam Marshall, director of policy at the British Chambers of Commerce, said such a policy would damage “businesses’ ability to manage their workforce”.

‘Days of Dickens’

He urged the coalition instead to raise the default retirement age or “offer employers a new dismissal route that helps business manage their workforce, regardless of age”.

For Labour, shadow work and pensions secretary Yvette Cooper accused the government of “moving the goalposts” for people in the fifties, leaving them thousands of pounds worse off.

People in Cardiff give their opinions on the changes to the age of retirement

She added: “This is unfair for a group of people who haven’t got time to change their plans.”

Bob Crow, general secretary of the Rail Maritime and Transport union, said: “As well as hitting pay, living standards, public services and jobs, the latest assault from the government is work until you drop.

“If you are a rich banker with a private pension you can sail off on your yacht at 55, but for working men and women retirement will be pushed further and further over the horizon in a step back to the days of Dickens. That is not sharing the pain, it is hitting the poorest hardest yet again.”

‘Unacceptable’

UK life expectancy is currently 77 years for men and 81 for women.

Paul Kenny, general secretary of the GMB union, said: “The government knows that manual workers in the industrial regions of the UK do not enjoy anything like the same life expectancy as professionals or other classes or employees.

“To force someone who has done a lifetime of toil on building sites, farms or in factories to work until they are 66 is completely unacceptable.”

In Tuesday’s Budget the government announced that, from April 2011, the state pension would go up by the increase in average earnings, or in line with prices, or by 2.5% – whichever is highest.

Previously it would go up every April by 2.5%, or the level of the Retail Prices Index the previous September.

This had been considered as unfair by some, as prices had lagged behind average earnings

Source: BBC News channel  11:33 GMT, Thursday, 24 June 2010 12:33 UK

NEST admin contract to be ‘re-examined’ – UPDATED

The computer contract for administering the National Employment Savings Trust – signed by the Labour government just months before they left office – will be re-examined, David Laws says.The chief secretary to the treasury said he had written to all secretaries of state asking them to re-examine all spending approvals since January 1 this year and all pilot schemes.

TCS bags £600mn UK pension deal

Pada settles on national employment savings trust (Nest) for personal accounts

The Personal Accounts Delivery Authority (Pada) has announced that National Employment Savings Trust (Nest) will be the new permanent name for personal accounts, due to come into effect under workplace pensions reform in 2012.

Nest will be run by a not-for-profit trustee body, the Nest Corporation. Pada developed the brand identity after carrying out research among 3,200 jobholders, employers and advisers, and working with external specialist agencies.

Jeannie Drake, acting chair of Pada, said: “We have one goal in mind: to make saving for retirement become the norm.”

Source: Employee benefits 1st Feb 2010

Key-Man Insurance

Directors beware!
Key-man insurance policies are becoming increasingly popular (or are increasingly being demanded by banks), but the tax treatment of the premiums payable and the proceeds receivable is far from straightforward. Traps await the unwary!
How do we define “key-man” insurance?
A “key-man” insurance policy is one taken out by a business on the life of key-worker to provide it with funds to protect it from the financial consequences of the key-worker dying or becoming incapacitated. The premiums are paid by the company and the proceeds will be receivable by the company, but it is the key-worker’s life (or health) that is insured.

 Tax trap 1

If the policy proceeds are not payable to the company, but are payable to the keyworker’s estate or family, that is not a key-man policy and the premiums will constitute earnings on behalf of the key-worker and PAYE liabilities will arise. If the payments are not declared the back tax and NICs can be considerable when discovered by the Inland Revenue.

Tax trap 2

Assuming one is dealing with a true key-man policy, there are no PAYE or benefit in kind problems as no benefit accrues to the key-worker or his family. The company should be able to claim a corporation tax deduction, but – here comes the next tax trap – this might be denied if the key-worker is also a substantial shareholder in the company.

Tax trap 3

If the policy was taken to provide a financial “cushion” from the loss of the key-worker, then the proceeds will be taxed as if they were a trading receipt. It is often mistakenly assumed that if tax relief on the premiums is not claimed, then any proceeds receivable will be tax-free. This is not correct as the Inland Revenue has win-win rules. The taxability of policy proceeds is dependent upon the nature of the policy, not on whether a tax deduction is allowed (or claimed) in respect of the premiums. If the premiums are allowable as trading payments, the proceeds will inevitably be taxable as a trading receipt – but the reverse is not necessarily true.
So take care!
It can be seen above that it is quite possible for premiums not to be tax deductible, but for the proceeds to be taxable! These proceeds will usually be quite large, so the tax liability arising could be significant. And if the intention is to pass the proceeds to the key-worker or his family, double-taxation could arise.

Top Tips

• Decide who the intended beneficiary is to be. If it is the keyworker or his family, the policy should be in his name and the premiums should be paid by him out of taxed income.
• For a true key-man policy, consider whether the premiums might not be regarded as “wholly and exclusively” for the company’s trade (e.g. if the key-worker is a major shareholder) and therefore not tax deductible.
• Ensure that policies do not attain a surrender value (e.g. endowment policies) as such premiums will be capital in nature and gains will be taxable.

Top Tips is designed to be a simple and useful source of ideas and information for clients and contacts of Jigsaw CFM. If you are unsure about the implications of any idea contained therein please contact Jigsaw CFM. Jigsaw CFM cannot take responsibility if the ideas are implemented without its involvement.