On 18 May 2016 the Queen announced the introduction of the Pension Bill 2016. Primarily intended to protect large numbers of people who have been or are being auto-enrolled into pension schemes operated under multi-employer schemes, it will also aid in removing the barriers to pension freedoms and change the manner in which guidance on financial matters is delivered.
In this article we provide an overview of the main points of the new Bill that employers should be aware of.
The auto-enrolment of employees into workplace pensions has led to an increase in the creation of multi-employer pension schemes that offer employers greater simplicity and lower operating costs (also known as master trusts). The new Bill will give the Pensions Regulator additional powers to authorise and supervise these schemes, and intervene if they do not meet the strict new criteria.
Currently the Pensions Regulator’s website mentions only 9 out of 72 multi-employer schemes that qualify to enter the market, raising the concern that employees could lose their pension contributions where schemes collapse.
Employers can seek reassurance from their independent financial adviser that the chosen multi-employer scheme meets the Pensions Regulator’s requirements and avoid having employees join a scheme that later collapses.
Pension freedoms – Caps on early exit penalties
In April 2015, new pension freedoms were introduced that allow pension savers access to use all their retirement funds as they wish (subject to tax implications). Figures from HM Revenue and Customs found that 146,000 people cashed-in pension pots in the six months since April 2015, withdrawing a total of £2.7bn.
The Pensions Bill will impose a cap on early exit penalties charged by occupational pension schemes allowing people to access their pensions under the pension freedom rules without unreasonable barriers. As many as 700,000 people could be liable for such charges.
Financial guidance streamlined
The Bill will combine three existing pension advisory bodies namely Pension Wise (a government service), the Pension Advisory Service (a non-departmental public body sponsored by the Department for Work and Pensions) and the Money Advice Service (an independent body). At the moment, employees seeking advice may have to consult more than one of these advisory bodies for comprehensive advice on a single matter. The new guidance body will seek to provide a more joined up service and ensure that any gaps in the provision of financial guidance is avoided.
This new guidance body will not only advise those retiring about their options such as buying an annuity, the open market option and income drawdown, but also advise those in debt unrelated to retirement.
Lifetime Savings Bill
A new Lifetime Savings Bill relating to lifetime ISA’s will be introduced. The Government will top up 25% on savings up to £4,000 per annum in the Lifetime ISA. It has been cautioned that employees understand the difference between Lifetime ISA’s and traditional pensions saving so as to avoid forfeiting employer pension contributions by opting out of company pension schemes.
How can we help
Abbiss Cadres has a unique service model incorporating all the expertise needed to help you manage the complexities of your pensions, employment and people issues.
If you would like advice on how we can help you with this or another pensions-related issue please get in touch.
Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this article.
Circular 230 disclosure
To ensure compliance with requirements imposed by the IRS and other taxing authorities, we inform you that any tax advice contained in this article (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.