May
18
2012
State pensions in transition – fairly simple or simply unfair?
The Queen’s Speech confirmed the Government will replace the two existing state pensions with a single flat pension. Many have welcomed this as a step forward for simplification. People will have a clearer understanding of what they’ll get from the state (well, provided it doesn’t change again) and can build their private pension planning on top of this. The plan is for the single flat rate pension to be above the means testing threshold, removing the current worry that private savings are not always worthwhile – for some, they may simply replace what they’d get anyway under means tested benefits. But it may not be good news for everyone.
While we’ve got very little detail, the idea is the basic state pension and the State Second Pension (S2P) (previously known as SERPS) will both disappear for those retiring after say 2016 and be replaced with the single flat rate pension, suggested to be around £140 per week in today’s money terms for a single person. As a headline figure, this looks good compared to the current basic state pension of £107. But what does it mean for those who’re currently entitled to an earnings related top-up?
May
04
2012
Getting disclosure right takes time
I wonder if our industry will ever find the ‘right’ way to disclose product information to consumers. At the heart of FSA regulation is the Key Features Illustration (KFI), which aims to tell the customer how much they might get back and how much this will be affected by charges – a worthy aim, but not without its challenges.
The RDR is separating charges into manufacturing and adviser (or consultancy) charges. The ‘Effect of charges’ table in the KFI will now show what you might get back after manufacturing charges and then after all charges. Similarly, customers will get double the Reduction in Yield figures – showing by how much the return will be reduced for manufacturing charges and then by how much more for adviser charges. I wonder how many customers will fully grasp this.
May
01
2012
3+½ pre-RDR, 3+½ post-RDR – Spot the difference?
We’re often asked whether, really, there’s any difference between commission and adviser charging (AC).
From the adviser’s point of view, the product provider provides (unsurprisingly) the product and passes on some remuneration to the adviser. That’s true of commission pre-RDR and, where the product provider facilitates a payment of AC, it’s also true post-RDR. So far so good.
But there are some fundamental differences between commission and AC.
Mar
30
2012
Operation ‘virtual’ big fat pension pots
We’re about to enter the brave new world of automatic enrolment, and it’s difficult to accurately predict its impact on the future of pensions. But one side effect anticipated is the significant increase in the number of small pension pots, driven by a combination of low earnings, a low legislative minimum contribution rate and frequent job changes.
Steve Webb, the Pensions Minister, is keen to solve this problem while still in office and has publically spoken on many occasions about his vision of everyone having ‘one big fat pension pot’ – and he’s keen to steam ahead. The DWP has just finished consulting on how to deal with these small pensions pots using non-advised automatic aggregation - I covered this in a previous blog.
Mar
21
2012
Budget 2012: No change to pensions tax!
In the run up to the 2010 election, George Osbourne promised to create a nation of savers. And today he kept his word! Both savers and the pensions industry will be pleased that the recent rumours about the possible removal of higher rate pension tax relief or a reduction in the Annual Allowance proved to be unfounded. The government appears to be backing capped pension tax relief against other forms of uncapped reliefs.
The Annual Allowance remains at £50,000 – hopefully for the foreseeable future. The reduction in the higher rate tax from 50% to 45% from 6 April 2013 will benefit the highest earners. And they’ll still be able to get full rate tax relief on their pension contributions, albeit at a slightly reduced rate of 45%.
Important note
This blog provides the views of our regulatory strategy team. The views are the opinion of the person writing the entry of the blog and don't necessarily represent the views of AEGON in the UK. They are based on their interpretation of industry developments and their current understanding of UK proposed and actual legislation, and should not be interpreted as recommendations or advice.
Research
We're a strong believer in using consumer research to inform the debates on how our industry should develop. And we're sharing our findings openly.