developments in the pensions landscape since 2008 · developments in the pensions landscape since...

01/10/2009 12:53 © Legal & General ● Presentation ● Department ● Author1

Developments in

the pensions

landscape since

2008

Adrian Boulding

Pensions Strategy

Director

Legal & General


Not the Domino Effect

• While banks collapsed around us

– Insurers stood firm

• Banks borrow short and lend

long

• Insurers carefully match

liabilities and assets


Means Testing Worries Eased

• 2008 Pensions Act was passed when Government

promised a full review of the impact of means testing

• 5th February 2009 – DWP Research Report No 558

– Over 70% of pension savers will get back more than

twice what they put in

– Over 95% will see an improvement greater than the

cost of their contributions

– No readily identifiable group of losers

“Even after inflation, virtually everyone

can expect to get back more than they

put away”

Rosie Winterton, Pensions Minister


Higher Limits for ISAs

• New ISA limits

– £10,200 ISA contributions each year

– £5,100 of this can be a cash ISA

• One in five use ISAs for retirement saving

– Particularly amongst ages 35-54

– Source : Ipsos-Mori

“This is welcome news”

Daily Mail


TPR Wakes Up to Increasing Longevity

• TPR has published mortality guidance for final salary trustees

– Duty to determine how fast past members have been dying off

– Explicit assumption required for mortality improvement

• Assumption must be declared to TPR

• Over optimism may trigger further scrutiny

“We are encouraged that

the regulator has listened to

concerns”

Hymans Robertson


Alistair Darling – 22nd April 2009

“In this Budget there will be new measures, to help

pensioners and savers on middle and modest

incomes.

“But I intend to address the anomaly which sees a

tiny proportion at the top taking a large slice of

the help we give people to save.”


What should high earners do ?

• Those with taxable income between £100,000 and

£113,000 should make additional pension contributions

to reduce income to £100k

– Effective 60% relief on these contributions

• High earners with income above £150,000 should

– Maximise pension contributions within the anti-

forestalling rules

Obtaining 50% tax relief in 2010/11

– Or, reduce their income below £150,000

Perhaps through charitable donations


Case study 2009/10

• A middle manager is made redundant

• Taxable income for 2009/10 is

– Earnings £60,000

– Redundancy £90,000 (taxable element)

– Investments £ 5,000

– Total £155,000

• If he puts the redundancy into the pension scheme, he faces a tax charge of £14,000

• But if he gifts £4001 to charity, grossed up through gift aid to £5001, then his taxable income falls below £150,000

– No tax charge, and the charity does nicely too !


Make Hay While the Sun Shines

• 40% tax relief on pensions still available on incomes

below £150,000

• Annual Allowance £245,000

• Several ways to encourage large contributions

– Create trading loss

– Bonus Sacrifice

– Sell other investments while capital gains are low

– Taxable Share Option Gains

– Severance Pay

– Inheritance


Not that you weren’t warned

• “Pensions tax relief warning”

• “Make payments to pensions as soon as possible”

• “Unlikely any change will be backdated”

– Financial Times, 10th April 2009

– 12 days ahead of the Budget


Early Access Ideas Gain Momentum

• Major PPI study last November

– Higher participation

Up to 6% greater take up

– Higher contributions

Between 0.6% and 3% of salary

– Much more money in pensions by 2050

“Central Scenario” – an extra £125 billion

“Optimistic Scenario” – an extra £400 billion

• Interest from all three political parties

• Cross industry group to evaluate practicalities

– Early access to tax free cash sum is favourite

– Pensions Pre-Commencement Lump Sum

“Ea

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ac

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ss c

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ld m

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e a

big

diffe

ren

ce

to

th

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nu

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ers

wh

o s

av

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or

retire

me

nt”


Launch of Pension Quality Mark

• PQM Standards

– Contributions

– Governance

– Communications

• Helping employers to

– Recruit

– Retain

– Motivate

Got a good DC Pension ?

Don’t keep it a secret !


Pension Quality Mark

• Endorsed by

– Tony Hobman, TPR

– Kay Carberry, TUC

– Doug Taylor, Which?

– Andrew Harrop, Age UK

– Malcolm Small, Institute of Directors

– Lynn Collins, M&S

2/3rds of job seekers will

favour an employer with the PQM – NAPF Research


Retirement Age of 65 is lawful…….for now

• UK’s Employment Equality (Age ) Regulations 2006

– Contain a Default Retirement Age of 65

• On 25th September 2009, Mr Justice Blake in the High

Court ruled that this is legal

• Turner Review

– Save more or work longer

• Government committed to review the DRA in 2010


Tories will tackle Age 75 issue

• “We want to abolish compulsory annuitisation at age 75”

– George Osborne

– Addressing ABI Biennial Conference, May 2009

• Greater flexibility needed for three groups

– Like annuities, but aren’t ready by 75

– Want to get their hands on the money faster

– Wish to cascade wealth down generations

Solution – continue income

drawdown past 75, with higher

minimum and maximum limits

for the wealthy


Annuities sold by age of annuitant

ABI Sales Data, Q2 2009

0

5000

10000

15000

20000

25000

30000

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75


Purchases over £100,000 only

ABI Sales Data, Q2 2009

0

100

200

300

400

500

600

700

800

900

50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75


Long Term Care makes it onto the policy

agenda

• By 2030, 4 million pensioners will need care

– 2 ½ million today

• Funding Options

– Partnership

– Optional private insurance

– Compulsory state insurance

• Once we have a system

– People will be able to save with confidence

“There are no easy answers”

Government Green Paper, Summer 2009


A Little Summer Madness


“PMI Encourages PADA to use the force”

- Pensions Week Headline

• “Consideration should be given to the the demand for

funds that meet the requirements of specific religious

and cultural groups such as Sharia Law or Jedi”

– PMI response to PADA’s investment consultation

• 2001 national census reveals

– 390,000 people who declare themselves to be Jedi

– An average of 0.7% of the population

– Jedi Hotspots include

Brighton

Wandsworth

Manchester


Developments in

the pensions

landscape since

2008

Adrian Boulding

Pensions Strategy

Director

Legal & General

developments in the pensions landscape since 2008 · developments in the pensions landscape since...

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