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December 2016 - Newsletter

State Pension to Rise by 2.5% in April 2017
The Government has revealed that the state pension will rise by 2.5% in April 2017. Pensioners on the new flat rate pension will subsequently see their weekly payments increase from £155.65 to £159.25. The old state pension will also rise from £119.30 to £122.30.
The Government report also shows that the “triple lock” promise on payments could push up the cost of providing the benefit by more than a third over the next three decades.

The triple lock is the mechanism currently used by the Government for uprating the Basic State Pension. Under the triple lock, the BSP is increased each April by the higher of the growth in average earnings.

The increase proposed is in line with earnings growth, and also the minimum payment promised to pensioners through the triple lock.

The promise, which was originally introduced by George Osborne in 2010 is set to continue until 2020. However, some reports in recent news have suggested that the new chancellor, Phillip Hammond, could potentially banish this assurance.

An industry spokesperson said that it was ironic that earnings growth had hit the 2.5% figure promised by the Government. He claimed that this would therefore make the Government’s promise to underpin the increase redundant.

“There is a fair bet that this time next year, it’ll be inflation hitting the highest number.”

“Pensioners can’t continue to enjoy indefinitely a ‘heads you win; tails you lose guarantee at the expense of tax payers. A review now looking beyond 2020 makes sense.

The PPI’s report, The New Pensions Landscape, found that both automatic enrolment into pensions and the triple lock were set to increase retirement incomes, but increases to the state pension age meant that individuals would receive less on average over the course of their lifetime.

The report found that changes to the system meant that on average pensioners were actually better off than they had ever been. However, those aged between 56 and 60 did face lower incomes in retirement than those who have already stopped working. Current retirees are more likely to have final salary pensions and to receive their state pensions for longer.

 

Pensions revolution to benefit 5 million
Five million self-employed workers are set to benefit from a new ‘pensions revolution’ being planned by the Government. The proposal could see them automatically enrolled into pensions and allow them to select their own state pension age.

The move follows increasing pressure on the Government from politicians and the pension industry to avert a pensions crisis amongst the self-employed. Previously, those that are self-employed have been excluded from many of the Government’s flagship policies.

MPs on the influential Work and Pensions Select Committee launched a formal consultation into selfemployed workers’ benefits, in which automatically enrolling them into pensions through the Government’s flagship auto-enrolment scheme will be a key consideration. 

The measures could increase their retirement funds by thousands of pounds by getting more of them saving, and possibly by enhancing their retirement pots with a special Government bonus.

The latest Department for Work and Pensions figure revealed that the scheme, which currently only exists for company employees, has led to an extra 11 million people saving into pensions.

Experts suggested that inclusion of the self-employed was long overdue as for years they had been excluded from huge improvements to the UK’s pension system, therefore leaving them in a potentially ominous position in old age.

The Pensions Minister, Richard Harrington said: “It is clear automatic enrolment is playing a key role in shaping the retirement landscape for generations to come. However, I want to build on this success and will be looking at how we can get even more people saving, and saving more.”

Industry sources also said DWP officials and the Minister had privately admitted that the self-employed exclusion from autoenrolment was “a big problem which needed addressing.”

Jon Greer, a pension expert at Old Mutual Wealth said: “It is encouraging that the Pension Minister has said he will see if it is possible to find a mechanism to bring the self-employed into automatic enrolment.

“The Government needs to ensure that it is easy to implement the scheme as the self-employed don’t have the payroll systems of big employers.”

 

Pensions time bomb ominous for under-30s
According to research conducted by Prudential, more than half of under-30s are without pension savings or are only making the minimum contribution to their pensions.

The recent figures from the Department for Work and Pensions show that threequarters of the UK's employees are participating in auto enrolment pensions schemes, with a total of 79% of eligible workers having contributed to a workplace pension in three of the last four years.

However, the insurer said that encouraging those under 30 to save enough for their retirement is a “challenge".
Many savers under the age of 30 surveyed, said that they were only able to make the minimum contributions due to more pressing financial commitments. They also complained that they were put off pension savings by complex pension rules.

Prudential’s study tracking UK workers aged 21 to 65, found that 53% of under 30’s only make the minimum pension contributions required by their workplace pension schemes or are without a pension altogether.

Although a quarter of under 30s said they can't afford to pay into a workplace pension scheme, 33 per cent also said they find pension rules confusing, while more than half complained that their employer had not explained the workplace schemes clearly enough.

Researchers also found that the proportion of those making only the minimum contributions decreases as employees age – from 40% for 21-30 year olds, to 30% of 31-40 year olds, and from 22% of those aged 41 to 50 to 16% of those aged 51 to 65.

Stan Russell, a retirement income expert at Prudential said that; “Pension saving is for the long-term and the contributions made earlier in your working life are obviously the ones that will have the best chance to grow and make a significant difference to your retirement.”

With this in mind, it is worrying that our research reveals that large numbers of younger workers are disengaged from providing for their own retirement.
“As life expectancy continues to increase and retirements get longer, it is inevitable that the responsibility for funding pensions will shift further and further away from governments and employers and more on to individuals.

"People who are members of workplace pension schemes benefit from employer contributions on top of their own and should try to save as much as possible from as early as possible in their working lives."

 

Christmas Update
All the team at IPSL would like to take this opportunity to wish everybody a Merry Christmas and a Happy New Year. 

It is important to note that our offices will be closed from 5pm on Friday 23rd December 2016 until 9am on Tuesday 3rd January 2017.

Season’s Greetings.

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