Pensions in the News
The profile of pensions in the media has continued to rise over
the last year, with two Acts of Parliament affecting pensions schemes,
the Pensions Act 2004 and the Finance Act 2004 becoming law, and
the publication of the first report of the Pensions Commission.
Although some of the Pensions Act changes took effect in April
2005 other changes will take effect from April 2006.
The Finance
Act changes will also take effect from April 2006.We will write
to you later in the year with detailed information about the changes
that may impact your pension and other benefits, but in the meantime,
here is a brief update of the changes taking place.
The Pension
Protection Fund – another layer of security
The Pension Protection Fund (PPF) was established from 6 April
2005, and has been designed to help members of final salary (or
defined benefit) pension schemes whose employer has become insolvent
and where the scheme’s assets are insufficient to provide
the full benefits promised to its members. Providing certain conditions
are met, the PPF will take over a scheme and responsibility for
paying compensation to its members.
The PPF will normally provide:
•
full pensions to members who are over the scheme’s normal
retirement age (age 60 in the case of Kingfisher) and to dependants
and members in receipt of pension on the grounds of ill-health
•
90% of full pensions for other members with a cap of currently £25,000
p.a
•
a 50% spouse’s / dependant’s pension
•
increases to pensions in payment at the lower of inflation and
2.5% per annum applicable to benefits earned from April 1997
Final
salary schemes (like ours) will have to pay a levy to the PPF and
membership will be compulsory. Kingfisher will meet the cost of
the levy so, as members, you will not currently be required to
contribute towards this levy.
Schemes will only qualify for help
from the PPF if the sponsoring employer is insolvent. If the sponsoring
employer isn’t insolvent, it will be required to meet the
cost of buying out the promised benefits with insurance policies.
The
Pensions Regulator
The Pensions Regulator is a new regulatory body created to replace
the Occupational Pensions Regulatory Authority (Opra) from 6 April
2005. The new Regulator’s objectives will be to:
•
Protect the benefits of members of work-based pension schemes
•
Promote good administration of work-based pension schemes and
•
Reduce the risk of situations arising that may lead to claims for
compensation from the PPF.
The Pensions Regulator will have wide powers to investigate pension
schemes and take action where necessary. It is expected to take
a proactive, riskfocused approach to regulation and provide practical
support for pension schemes by issuing codes of practice. These
are intended to provide guidance on how to comply with relevant
pensions legislation, and will set out standards of conduct and
practice that are expected from those involved in providing and
running pension schemes, including trustees, advisers, administrators
and employers.
Review of Pension Taxation
The Finance Act 2004 allows for the introduction of the Inland
Revenue’s new simplified pensions tax regime from 6 April
2006. Some of the new rules will have to be implemented by all
pension schemes, but in other areas, the Trustees and Company will
have some flexibility to decide when the detailed changes will
be adopted and how the Scheme’s processes and procedures
will be adapted to the new laws.
Some of the key changes are:
•
an allowance on lifetime pension benefits from all sources of £1.5
million (subject to annual review)
•
an annual allowance on pension contributions of £215,000
(to be increased each year)
•
generally higher tax-free lump sums at retirement
•
from 2010, the minimum age for early retirement will increase from
50 to 55
•
members may be able to take their pension (providing they meet
any criteria set out in the Scheme rules) while continuing to work
for their employer.
The changes involve complex administrative changes, and the Company
and the Trustees will continue to work with their advisers to identify
the best way to accommodate the new requirements.
Challenges and Choices
On 12 October 2004, the Pensions Commission, chaired by Adair Turner,
published its first report. The Commission presented some startling
facts on the adequacy of pension provision and saving in the
UK. It set out the major challenges that society faces and the
unavoidable choices that need to be made to meet them, and concluded
that a combination of the available choices would be needed.
The challenges
•
Increased life expectancy and low fertility will lead to a major
rise in dependency ratios i.e the percentage of the adult population
over the age of 65 will increase dramatically over the next 50
years. The Government Actuary’s Department projects that
the ratio of those aged 65+ to those aged 20-64 will increase from
27% to 48% by 2050.
•
The post-war baby boom has concentrated the impact of long-term
changes into the next 30 years – by disguising the dependency
trend, the baby boom has allowed us to ignore the long-term reality.
•
The increase in the old-age dependency ratio puts strain on any
pension system whether funded (like company pension schemes) or
pay-as you go (like the State pension scheme)
The choices
•
Future pensioners will on average be poorer, relative to average
net incomes, than today
•
Taxes/NI contributions will have to rise in order to pay for pensions
or other public spending will have to be cut to make room for pensions
•
Each generation will have to save more and will be reliant on the
next generation also choosing to save more
•
Average retirement ages will have to rise
Pension Tracing Service
From April 2005, the Department of Work and Pensions (DWP) will
assume responsibility for the Pension Tracing Service (previously
provided by Opra). Initially, the DWP will provide an identical
and free service for tracking “lost” occupational and
personal pensions,with access via e-mail and in writing, although
there are plans to improve the range of communication channels
to include access and response by telephone and the internet. |
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