How Long Is A Piece Of String?

Typically, the main queries I’m asked as a Pension Adviser from members of Workplace Pensions tend to revolve around the level of income that they may need in retirement.

How much is enough?
What is the average?
What do others do?

These are the commonly asked questions and as an adviser it is like asking ‘How long is a piece of string?!

The only way to understand someone’s true income in retirement is to work through a budget plan with them based on their current scenario and make assumptions around which of those items won’t be around at retirement. This analysis should leave the member with a ‘target’ income to aim for at retirement and this is where the need for advice kicks in as the member usually then requires recommendations as to how they can reach their income goal.

At 42 years of age, if I was asked what income I would need in retirement, I’d only have half an idea as it is not something I have given much thought too as it is still quite a time away. However, like many others during the current Covid19 lockdown, my wife and I have spent some time tightening our belts by reducing unnecessary costs since my wife has been furloughed from her current role in the leisure industry. A few voluntary measures that we have taken include taking a mortgage payment holiday and temporarily freezing our Sky and BT Sports subscriptions (this hurt quite a bit). Enforced measures that we are experiencing revolve around reductions in our entertainment spending, such as fewer takeaways, less fuel for the car, not being able to take the kids out for entertainment (big savings here) as examples.

When we now look at our bank account, could this be what our future outgoings may look like? We’d like to think our mortgage will be paid off by the time we reach retirement although if I have my way, we’ll keep my Sky and BT Sport subscription. Will we need two cars? Will we go out as much? Will we be spending money on the kids…grandchildren? We don’t know the answers to these questions, but we think that the Covid19 situation has made us a little more in tune with what the future might look like. Now that we know what this figure might be, we can now look at what pensions we have and plan accordingly in terms of what these may give us as an income.

As part of Wingate Benefit Solutions Standard Pension service, we put planning for retirement at the heart of our Pension Member Services. We produce personalised member reports which are designed to empower a member to take control of their retirement planning and help them understand what their retirement income objectives are and whether they are on track to achieve these goals.

Our report is very effective because it clearly sets out information and solutions in a format that people can understand and as such, value. A member can include not only their current employers’ workplace pension but also any other pensions that they may have already accrued, regardless as to whether these pensions are defined contribution or defined benefit schemes. As these reports come at no cost to the member, the member can ask us to run as many scenarios as they would like to really nail down their plan for retirement, looking at different angles such as:

What if I change my retirement date?
What if I pay a little more in?
What if I don’t pay in as much?

By adopting Wingate’s Standard Pension service, an employer can really add value to their workplace pension offering to make their pension scheme stand out as a valuable benefit for their staff as part of their overall benefits package, designed to attract and retain quality members of staff.

For more information on Wingate’s Standard Pension Service, please contact one of the team at Wingate on 01883 332260 or at info@wingatebs.com

What is ‘The Pensions Dashboard’?

The Pensions Dashboard is a platform that lets savers see all their pension pots in one place.

Why is it needed?

According to Which?, almost half of over 50s don’t know the value of their pension while as much as 21% of savers have never even checked how much they’ve saved in their pension.

On average, a person can have 11 employers over their working life and currently there is no way for people to see the value of all of their pensions in one place. As such people approaching retirement find it difficult to keep track of their pension pots.

The Pensions Dashboard aims to provide a link to “lost” pension pots with previous employers to help release the £millions worth of pensions savings currently unclaimed

Who has signed up to the dashboard?

The full list of contributing firms is:

  • Abbey Life
  • Aon
  • Aviva
  • Fidelity International
  • HSBC
  • Legal & General
  • Lloyds Banking Group (Scottish Widows)
  • LV=
  • NEST
  • NOW: Pensions
  • Phoenix
  • Prudential
  • Royal London
  • Standard Life
  • The People’s Pension (B&CE)
  • Willis Towers Watson
  • Zurich

The DWP will be ensuring that the State Pension will also be included and it is likely more major pension providers will sign up to the dashboard over the course of the coming months.

It is also expected that final salary schemes (Defined Benefit) will also be included, not just money purchase (or Defined Contribution) pensions.

When will the Dashboard be up and running?

A prototype should be ready for testing by March 2017, with the prototype project completing in May.

The goal is for the dashboard to be fully ready for public use in 2019 in a single online place of their choice.

 

 

Laws and tax rules may change in the future. The information here is based on our understanding in January 2017. The information in this blog or any response to comments should not be regarded as financial advice.

You may be aware that from 6th April 2016 there were changes made to pensions that will affect higher earners.

Contributions made this tax year are restricted to as little as £10,000 for those with £210,000 of earnings. However, because of how the rules work, they can affect those with income as low as £110,000 from all sources. As such if for example you are providing an employer pension contribution of 5% for such an employee, they could very well have a problem but this would also be the case if the contributions were on a matched 3% of salary basis.

Whats changed?

From 6th April 2016 the Annual Allowance (the amount that can be contributed to a pension and receive tax relief) reduced for higher earners. Very simply, these individual’s Annual Allowance has reduced by £1 for every £2 of income they have above £150,000.  Some examples are shown below:

  • Income of less than £150,000 their Annual Allowance is £40,000
  • Income of £170,000 their Annual Allowance is £30,000
  • Income of £190,000 their Annual Allowance is £20,000
  • Income of £210,000 or more their Annual Allowance is £10,000

The income is from all sources and will be adjusted if your employer makes large pension contributions.

Income over £110,000?

Whilst the rules may first appear to affect only those earning over £150,000 they can affect those who have income as low as £110,000 from all sources.

This is because individuals will have a lower annual allowance for this tax year if both the following apply:

  • their‘threshold income’ is over £110,000 – this is their income excluding any pension contributions (unless they’re paid as a salary sacrifice by your employer)
  • their ‘adjusted income’ is over £150,000 – this is their income added to any pension contributions they make out of gross pay or their employer makes

The salary sacrifice must have been in place before 9th July 2015, and there are some other quirks of the rules beyond the scope of this communication.

Therefore if an individual has income from all sources of less than £110,000 they are not affected by these changes.

Carry forward 

If individuals have unused pension Annual Allowance in the previous 3 tax years then potentially, for a limited period of time, carry forward may be an option to enable contributions in excess of the new April 2016 allowance limits to be made without a tax liability arising. However, even if carry forward is available it will only ever have very limited availability.

Action Point

We recommend employers review the pension contribution situation for employees earning £110,000 or more and certainly for those earning over £150,000. Depending on the individual employee’s circumstances your employer pension contribution could see the employee receiving an unexpected tax bill, which would at best question the value of them having a company pension contribution (as opposed to additional salary or another form of employee benefit).

If you would like assistance in this area please contact your usual Wingate contact or one of our strategic benefit consultants on 01883 332260 or at info@wingatebs.com.

 

 

This information is based on our current understanding of legislation which can change without notice.  Professional advice should always be sought prior to making any changes to your arrangements or deciding on any action in this respect. This information should NOT be treated as personal advice or recommendation.

Annual Member Engagement Invitation

We contact every member of the pension scheme to offer them our pension scheme member services.

Member Helpdesk

Unlimited access to our employee benefit help desk.

Goal Based Retirement planning reports

These reports are designed to provide a summary of an employees overall retirement provision and includes all the pension benefits and investment entitlements that you have accrued to date, not just your current employers scheme. The report will illustrate in annual income terms what your current pension benefits are projected to provide at the time you wish to retire and how this compares to the level of income you are targeting for your retirement. If there is a shortfall, the report will provide details on how this can be addressed.

Retirement Service

We offer personal advice to you as you approach your retirement.

Investment Services

We recommend and monitor three risk rated investment funds which are categorised as ‘cautious’, ‘moderate’ and ‘adventurous’. These funds automatically reduce their risk as employees approach their selected retirement date. We assess an employees attitude towards investment risk and then map them to the most suitable investment fund.

New Employee Information and Advice

We issue documents for new employees which provide information on the key features of the pension scheme, contribution options and if applicable, salary exchange.

What is The Pensions Dashboard?

The Pensions Dashboard is a platform that lets savers see all their pension pots in one place instigated by the government.

Why is it needed?

According to Which?, almost half of over 50s don’t know the value of their pension while as much as 21% of savers have never even checked how much they’ve saved in their pension.

On average, a person can have 11 employers over their working life and currently there is no way for people to see the value of all of their pensions in one place. As such people approaching retirement find it difficult to keep track of their pension pots.

The Pensions Dashboard aims to provide a link to “lost” pension pots with previous employers to help release the £millions worth of pensions savings currently unclaimed

Who has signed up to this dashboard?

The list of firms signed up to date is:

  • Abbey Life
  • Aon
  • Aviva
  • Fidelity International
  • HSBC
  • Legal & General
  • Lloyds Banking Group (Scottish Widows)
  • LV=
  • NEST
  • NOW: Pensions
  • Phoenix
  • Prudential
  • Royal London
  • Standard Life
  • The People’s Pension (B&CE)
  • Willis Towers Watson
  • Zurich

The DWP will be ensuring that the State Pension will also be included and it is likely more major pension providers will sign up to the dashboard over the course of the coming months.

Defined Benefits (Final Salary) will be included as well as Defined Contribution (Money Purchase) pensions.

When will the Dashboard be up and running?

A prototype should be ready for testing by March 2017, with the prototype project completing in May.

The goal is for the dashboard to be fully ready for public use in 2019.

 

 

Laws and tax rules may change in the future. The information here is based on our understanding in January 2017. The information in this blog or any response to comments should not be regarded as financial advice.