Top Tip – Pension Reforms

http://www.brandft.co.uk/

Anyone studying for a CII Pensions exam will know that the new manuals are littered with the proposed reforms.  I thought it might be handy to summarise some of them here:

From April 2014

• Lifetime allowance will reduce to £1.25m
• Fixed protection 2014 will be introduced – register by 5 April 2014 if accrued pension rights are likely to exceed £1.5m
• Annual allowance will reduce to £40,000
• Short service refunds will be abolished where someone leaves an occupational DC scheme
• Introduction of a ‘pot follows member’ – accrued pension of less than £10k in a DC scheme will be moved with the employee (unless they opt out)
  

From April 2016

• Introduction of a single tier State Pension – those with entitlement under SERPS, S2P and Graduated pension will maintain entitlement even if it’s higher than the new amount
• Pension credit (in particular savings credit) will change with the new single tier State pension
• Contracting out on a defined benefit basis will stop
• Bereavement Payment,  Bereavement Allowance and the Widowed Parents Allowance to be replaced with a single benefit – Bereavement Support Payment – made up of a one off tax free lump sum and a monthly tax free payment for 12 months
• Anyone deferring their Basic State Pension will only be able to defer it for an increased income in other words the lump sum option will disappear.  The amount of the increase in deferment is also likely to reduce
• Individuals will need 35 years of National Insurance Contributions to qualify for a full pension.  Contributions to make up any shortfall for tax years 2006/7 through to 2015/16 will be able to be paid until 5 April 2023
• Category B pensions are likely to cease – transitional arrangements will be put in place

Other things to mention:

• An increase in State Pension age from 66 to 67 between April 2026 and April 2028 and provision for 5 yearly reviews of State Pension age;
• Consultation process started in February to make the process of auto enrolment easier;
• Pension increase exchange is being offered by DB schemes – the member is offered the option of giving up future guaranteed increases for a higher initial pension with no future increases.

As you can see, and were no doubt aware, there is a lot of change on the horizon – and, as the manuals remind us, we should ensure that we keep up to date with developments as the detail is announced.

For more help with your Pension exams go to:

For CF4: http://www.brandft.co.uk/cf/cf4.asp
For R04: http://www.brandft.co.uk/drfp/r04.asp
For J05: http://www.brandft.co.uk/df/j05.asp
For AF3: http://www.brandft.co.uk/advdf/af3.asp