Andrew from Vista Financial

Changes to UK Pensions system

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    There have been some fairly big changes announced to the UK pensions system of late which affects both Market Linked pensions and Final Salary pensions.

     

    Firstly Final Salary Schemes

    Last year the Government announced the move to change the way that deferred members and members in payments benefits were increased and that change was certainly not a favourable one.

     

    The move was that the inflation measure used, the Retail Prices Index (RPI) has now moved to the Consumer Prices Index (CPI) which is historically much lower.

     

    Also last week Lord Hutton released his final report on the Independent Public Service Pensions Commission (IPSPC). There are a number of suggested changes to pensions but probably the most debated one being the proposed move from Final Salary Schemes to Career Average Pensions (CARE)

     

    To see the full report see here http://www.gad.gov.uk/Documents/Press%20Releases/2011/IPSPC-Lord_Hutton's_Final_Report.pdf

     

     

     

    Secondly Market Linked Schemes:

     

    The age at which someone must take an annuity or alternatively secured pension has been increased to age 77, this used to be age 75.

     

    This of course is a good thing for people an retirement age so that they do not have to lock in to an annuity rate at times when annuity rates are dismal like now for example. They can prolong having to buy a low yielding annuity in the hope that rates will increase in their favour and in the meantime can start what is known as pension drawdown which is effectively an income stream from their pension pot.

     

    A major change is that Annuities are no longer compulsory for certain individuals and that these individuals can cash out 100% of their pots. Unfortunately this will only be for individuals that will still have other lifetime pension income of £20,000.

     

    So although there are limitations to these changes it looks as though the UK are moving in the right direction for people with market linked schemes.

     

    Here in Australia having the flexibility to draw out up to 100% of your monies as a lump sum at retirement is one of the reasons the system is more sophisticated than the UK and, why paying into super/pension is something that people can see real benefit in.

     

     

     

    Regards

     

     

    Andy

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