Kingfisher : Talking Pensions

Pensions in the News

The profile of pensions has continued to rise in the media over the last year, with widespread concern about funding shortfalls and the losses suffered by members when their pension scheme wound up. A number of proposals have been made, and measures taken, aimed at restoring faith in company pension schemes.

Stopping employers walking away from their pension promises
A funding shortfall in a company final salary pension scheme need not be a problem, provided the parent company is committed to making good the deficit over a reasonable time span and can continue to promise its ongoing support for the fund. However, members, and in particular, non-pensioners can loose out if the pension scheme begins to wind up.

A recent change to legislation means that a solvent employer who wants to close its pension must ensure that the fund has enough money to pay all of the benefits in full.

Where pension schemes have already begun to wind-up causing their members to suffer a loss to their expected benefits, the Government has promised financial assistance for their members to the tune of £400 million spread over 20 years. Details of how the payments will be made and which members will qualify for compensation are still being worked out.

Changing the priority order
When a final salary pension scheme winds up, a statutory priority sets out how the money is shared out. Until May 2004, pensioners generally had their entitlements paid in full before other members’ benefits were met. For schemes beginning to wind up after May 2004, pensioners’ entitlements will still be met first, but future increases will not be allowed until other members’ benefits are provided.

Further measures to improve security
Further measures for improving security for pension scheme members - and not just for schemes winding up - were proposed in the recent Pensions Bill, now in the final stages of making its way through Parliament. Most of the measures for protecting pensions should be with us by April 2005.

Among other measures, we will see:

•	A new Pension Protection Fund (PPF) which will assume responsibility for providing the pensions of the members of pension schemes whose sponsoring employer has become insolvent where the scheme is unable to provide full benefits to its members.
•	A new Pensions Regulator to protect the benefits of pension scheme members and to promote and improve the good administration of pension schemes
•	A new funding standard for pension schemes to ensure schemes have sufficient and appropriate assets to meet future benefits and for the Trustees and the Company to maintain a statement of funding principles.
•	Employers will have to consult active members before making major changes to future benefits accrual.
•	Changes to the system of electing member nominated trustees.
•	Measures to improve Trustee training

Tax Simplification
Alongside the changes to be made under the Pensions Bill a radical change will be made to the system of restricting contributions and benefits that can be paid to and from a tax approved pension scheme, coming into effect from April 2006

OUT will go

• the pension restriction of 2/3rds of salary;

• the complicated calculations of tax-free cash sums

• the employee contribution limit of 15% of earnings

IN will come

•	A life-time funding allowance of £1.5 million in 2006 (so not many of us affected!)
•	An annual allowance for pension accrual of £215,000 (again not many of us affected!).
•	Flexible retirement – the possibility of taking partial benefits before actual retirement.
•	Retirement tax-free cash sum of 25% of the value of the pension benefit.
	As ever, not everything will be welcome to all:
•	From 2010, the minimum age for early retirement will increase from 50 to 55.

As we write, much of the detail of these measures still isn’t known. Therefore, neither the Company nor the Trustees have had an opportunity to consider how the new measures will affect the Kingfisher Scheme. Therefore, please don’t phone or write to the Pensions Department for more information, as we will be writing to members in due course.

Pension Credit
The Government introduced the Pension Credit on 6 October 2003 as a replacement for the Minimum Income Guarantee. The Pension Credit is available in two parts. The first is called a Guarantee Credit which guarantees everyone aged 60 years and over a weekly income of at least £105.45 or £160.95 for a couple.

The second part is called the Savings Credit and can be paid to anyone over the age of 65 who has saved for their retirement, perhaps having a small second pension. Pensioners with modest savings of up to £16,000 should qualify for all or part of the Pension Credit.

The Government will write to people aged 60 and over to help them decide whether to apply. The new credit will be administered through the Pension Service, a part of the Department for Work and Pensions. If you think you might be entitled to Pension Credit, you can call the free telephone service
0800 99 134 for advice.