Pensions & Investment — Page 2

  • Pensions & Investment

    Low contributions compound the governance gap in workplace pensions

    8th March 2013 — Filed under: Pensions & Investment

    Craig Berry Craig Berry

    There are two main approaches to designing a ‘defined contribution’ (DC) workplace pension scheme. All DC schemes involve the individualisation of risk, but within this, schemes can be either trust-based or contract-based. The impact on members of this difference is the subject of the TUC’s forthcoming pensions seminar, The Governance Gap, which features shadow pensions minister Gregg McClymont.

    New data published by the ONS on pension contributions last week appears to compound these differences – with members of contract-based schemes tending to receive lower employer contributions into their pension pot.

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  • Pensions & Investment

    High noon for the annuities market? Probably not

    4th March 2013 — Filed under: Pensions & Investment

    Craig Berry Craig Berry

    Automatic enrolment into workplace pensions will see the vast majority of people enrolled into risky ‘defined contribution’ schemes in the future. They probably don’t realise it yet, but this means they need to annuitise their pension pot when they get to retirement, in order to turn their savings into a regular income, guaranteed for life.

    The problem is that annuity rates are particularly low at the moment, undermining the value of pensions saving. The market for annuities has always been fairly opaque, plagued by huge information asymmetries between consumers and providers, chiefly insurance companies (and remember that auto-enrolment is based on the notion that consumers should be able to remain disengaged yet still receive good outcomes from saving).

    So the news that the Financial Services Authority (FSA) is to review the annuities market is very much welcome. But will their review go far enough to address problems in the marketplace? The initial signs are not encouraging.

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  • Pensions & Investment

    The master-plan: how will the Pensions Regulator respond to market innovation?

    15th February 2013 — Filed under: Pensions & Investment

    Craig Berry Craig Berry

    Generally speaking, scale in defined contribution (DC) workplace pensions provision (the likely destination of most people auto-enrolled into a pension in the next few years) is a good thing. Most of all, scale can bring cost efficiencies, enabling lower charges and/or an enhanced service for individual scheme members. DWP is also right to suggest in its ‘reinvigorating workplace pensions’ strategy that scale might be a pre-requisite of introducing risk-sharing into DC provision.

    The arrival of large-scale, multi-employer DC providers in the pensions marketplace (the so-called ‘master trusts’) in the wake of automatic enrolment is one of the things that has prompted the Pensions Regulator to revamp its code of practice and regulatory guidance for trustees of DC pension schemes. It remains to be seen, however, whether the Regulator has done enough to unlock the benefits of scale while addressing some of the concerns around the governance of master trusts.

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  • Pensions & Investment

    Special pleading from insurance industry on NEST restrictions

    28th January 2013 — Filed under: Pensions & Investment

    Nigel Stanley Nigel Stanley

    Today the government’s consultation on the restrictions on NEST closes.

    The TUC has joined with other consumer groups and a coalition of employers to support the lifting of the contributions limit – no-one can save more than £4,200 a year – and the ban on  transfers in or out of NEST. But insurance companies – with one honourable exception – still oppose. Helen sets out the background clearly here.

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  • Pensions & Investment

    Coalition calls for the lifting of the restrictions on NEST

    28th January 2013 — Filed under: Pensions & Investment

    Helen Nadin Helen Nadin

    In response to a DWP call for evidence the TUC, Age UK, Which?, EEF The Manufacturers’ Organisation, the Federation of Small Businesses and the British Chambers of Commerce have written to the Pensions Minister Steve Webb MP calling for immediate lifting of the annual contribution limit and restrictions on transfers in and out of NEST.

    NEST was established as a low-cost pension scheme for low- to middle-income earners, with a public service obligation, as the commercial pensions industry was not providing for this market, or not an affordable cost. All the organisations agree that NEST has achieved its aim of serving its target audience and that it is therefore time to lift the restrictions placed on NEST.

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  • Pensions & Investment

    Auto-enrolment from a young person’s perspective

    19th January 2013 — Filed under: Pensions & Investment

    Sophie Robson Sophie Robson

    Young people know all too little about how a pension works. A report I wrote in 2012 for City think-tank the CSFI, Generation Y: the (Modern) world of personal finance found a lack of basic pension knowledge amongst young people aged 18-25. In fact, one of the key findings was that more than 40% of those paying into a pension scheme weren’t even sure what type it was.

    Even if they did have some knowledge of pensions, they seemed reluctant to contribute to one: many felt that pensions were inflexible, confusing, and faced an uncertain future. Final salary schemes have all but disappeared for new workers, while many inflation-linked pension schemes are vulnerable to changes to the index on which they are based. It seems that other age groups fare little better: the DWP’s recent report Attitudes to Pensions found that only 6% of those in the general population felt they had a good knowledge of pensions, while 28% of women admitted to feeling scared about dealing with pensions. Many of those questioned were even uncertain about what their State Pension age entitlement was.

    There is a need for better financial training from an early age to promote confidence, and a need for simpler, more certain, pension products, that will be worthwhile for young people to contribute to into the future.

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  • Pensions & Investment

    What if we have a flat rate pension?

    14th January 2013 — Filed under: Pensions & Investment

    Nigel Stanley Nigel Stanley

    The pensions world awaits the detail of the government’s White Paper setting out how they will achieve their goal of providing a single flat rate pension set above means-testing level. It’s a worthy objective – and many of the right people  will gain – but the test will be how it’s paid for.

    But that analysis has to wait until we see and analyse the White Paper. What we can do now is look at the implications of a flat rate pension for other parts of the policy jigsaw as pensions policy in recent years has been set assuming that many people will retire and rely on means-tested pensioner benefits. Indeed this was a favourite starting point for those wishing to oppose auto-enrolment – inevitably some people will lose means-tested benefits to the extent that they might have been better off opting out, even if the numbers are likely to be quite small, particularly when compared to the  millions who gain.

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  • Pensions & Investment

    A disaster in the making? DWP’s decision on the automatic enrolment trigger

    14th December 2012 — Filed under: Pensions & Investment

    Craig Berry Craig Berry

    I warned on this blog back in October about the potentially dire consequences of linking the automatic enrolment earnings trigger to the personal income tax allowance. But this is exactly what the government has done. From April 2013, anybody earning less than £9,440 will not be automatically enrolled into a workplace pension.

    So they will not be saving for retirement, and they will miss out on receiving an employer contribution into their pension pot. Some will be able to ‘opt in’ (if they earn above £5,668) but the whole point of automatic enrolment is that it is supposed to remove the need for workers to make an active decision to join a workplace pension scheme, with employer contributions, which for all intents and purposes should be considered a standard and legitimate element of their remuneration.

    The trigger for 2012/13 was £8,150. The rise to £9,440 therefore represents an annual increase of 16.5 per cent, or more than ten times the increase in average earnings over the past year.

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  • Pensions & Investment

    European Commission must change course to avoid devastating UK pensions

    13th December 2012 — Filed under: Pensions & Investment

    Craig Berry Craig Berry

    The pressure on the European Commission has continued to mount over its proposals to codify the valuation of funded DB pension fund assets and liabilities across the continent, and to apply Solvency II-style solvency capital requirements on funds.

    Analysis last month by the Pensions Regulator showed that, in the most likely scenario, fund deficits would increase by £150 billion. This arises simply from a change in the calculation of technical provisions, which adds £500 billion to deficits. The Regulator is allowing, however, the full amount to be offset by £350 billion, that is, its estimate of the value of sponsoring employers’ role. The EU quango responsible for the proposals, the European Insurance and Occupational Pensions Authority (EIOPA) recently admitted that how to value sponsor support requires far greater consideration.

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  • Pensions & Investment

    Uprating of the 2013 Basic State Pension not quite as good as it looks?

    5th December 2012 — Filed under: Pensions & Investment

    Helen Nadin Helen Nadin

    In the June 2010 Budget the Chancellor announced that the Basic State Pension (BSP) would be increased by the higher of CPI, earnings or 2.5%, known as the “triple lock”. While the TUC welcomed this announcement, we believe the change was over-stated by the government and would result in lower increases in the BSP than would arise from using RPI as the measure of inflation. Today’s announcement confirms that this has been the case.

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