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April 2017 - Newsletter

Annuities remain most popular option for small pots

…This was however by the slimmest of margins, a sole percentage point, that annuities came out on top among this group.

40% of those with small pots favoured flexible drawdown options, an option that was not available for low-balance retirees before the introduction of pension freedoms in April 2015.

19%, meanwhile, favoured withdrawing a cash lump sum.

The research found that the larger the pot size, the more likely the individual was to favour flexible drawdown.

Bruce Moss, founder and strategy director of EValue, said the “strong correlation” between the preference for flexible income and increasing pension wealth seemed “very rational”.

“The additional costs associated with flexible income are easier to justify, the risk of variations in the level of the income which is sustainable for life may be easier to shoulder and there is a stronger sense of ownership as pension assets increase," he said.

"However, part of the effect is also due to the fact that men tend to have higher pension funds and are more favourably inclined to flexible income."

Bruce Moss, founder and strategy director of EValue, said the “strong correlation” between the preference for flexible income and increasing pension wealth seemed “very rational”.

Of those with pot sizes between £50,000 and £100,000, 52% favoured flexible drawdown, 34% annuities, and 11% cash.

For the next band - £100,000 to £150,000, 52% favoured flexible drawdown, 35% guaranteed income and 11% cash.

In addition, those with £100,000 to £150,000 pot sizes, the gap had widened further, with 55% choosing flexible drawdown, 34% annuities, and 11% cash.

Those with more than £150,000 in a Defined Contribution pension, 66% opted for flexible drawdown, 26% for guaranteed income products and just 8% opted for cash.

EValue’s research came just a day after the Association of British Insurers released its own figures on the behaviour of retirees post-pension freedoms.

It found that the number of full cash lump sums had remained high in the second year of the pension freedoms policy, with £1.627bn taken in full cash withdrawals in the second and third quarters of 2016 combined.
The ABI figures also confounded assumptions that annuities were dying. In Q2 of 2016, £1.18bn was invested in 20,800 annuity policies, while in Q3 £1.17bn invested in 20,100 annuity policies.

That was similar to levels seen in the first year of pension freedoms.

See more below:
https://www.ftadviser.com/retirement-income/2017/04/13/annuities-most-popular-option-for-small-pots/

 

Royal Mail to close Defined Benefit Scheme

…The Communication Workers’ Union (CWU) condemned the closure, and threatened to take industrial action if agreement could not be reached.

However, Royal Mail, which was privatised in 2012, said that there was little alternative.

“We have concluded that there is no affordable solution to keeping the plan open in its current form,” the company said.

“Therefore, the company has come to the decision that the plan will close to future accrual on 31st March 2018, subject to trustee approval.”

The Defined Benefit scheme was closed to new members in 2008, but current employees have continued to contribute.

A strike may be on the horizon as the CWU have said that their members – including sorting and delivery staff – could lose up to a third of their future pensions.

A 50 year-old earning £25,000 a year and retiring at 65 would lose £4,392 a year, or more than £100,000 over the course of their retirement, it said.

“The CWU has made clear that any attempt by the company to impose change without agreement will be met with the strongest possible opposition, including a ballot for industrial action,” said Ray Ellis, the union’s acting deputy general secretary.

“We will not stand by and watch the company abandon the pension promises it made at the time of privatisation which threatens our members with massive cuts to their future pension benefits and insecurity and poverty in retirement.”
Royal Mail wants members of the scheme to move to a Defined Contribution plan – in which the company and staff contribute to a pension fund with no guarantee of eventual income levels.

However, it said that it was working with unions on a sustainable and “affordable solution”.

See more below:
http://www.bbc.co.uk/news/business-39586842

 

Labour vow to keep State Pension Triple-Lock

…Other planks of the Labour policy is protecting the state pensions of overseas pensioners, many of whom have their payments frozen; and providing extra help to women affected by increases in their state pension age.

John McDonnell said: “It’s a national scandal that pensioner poverty is rising and the Tories are refusing to commit to keeping the triple-lock or compensate women worst affected by the speeding up in the state pension age.”

“Only a Labour government will stand up for pensioners and protect them throughout the next parliament.”

McDonnell’s pledge of protecting the value of state pensions for overseas pensions would assist UK retirees in Australia, New Zealand and Canada, who do not have a ‘bilateral’ deal with the UK, which means that the state pension for UK expats does not increase in line with inflation.

A spokesman at an investment company saw the pledges as a ploy to target the power of the grey vote, but questioned whether such policies were sustainable.

“The central pledge to retain the state pension triple-lock goes against the recommendations of both the Work and Pensions Select Committee and John Cridland’s independent report, both of which concluded the policy should be scrapped,” he said.

“The cost of Labour’s triple-lock promise is, of course, uncertain – if earnings and inflation are below 2.5% between 2020 and 2025, for example, it could be very expensive.”

The investment company noted that UK Governments have previously baulked at the cost of providing inflation increases for pensioners in Australia, New Zealand & Canada, which is estimated to cost around £200m a year by 2020.

See more below:
https://www.ftadviser.com/Articles/2017/04/12/fta-Labour-pension-pledge

 

Easter Update
All of us at IPSL would now like to take the opportunity to wish everyone a very happy and healthy Easter break. Our offices will be closed on Friday 14th April and will reopen on Tuesday 18th April.

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