Are Defined Benefit Pension Funds Disappearing?

CarrilionAlthough this could be a sore subject for many of those reading, the article below and ones like it are important to pay attention to with shifts in the pensions environment.

Below you will find an article released on 14/01/18 by Geoff Ho on express.co.uk. In the 24 hours since this article was released, Carillion has now gone into liquidation putting thousands of jobs at risk and needing £300M of short-term funding. As Carillion is carrying a pensions deficit of roughly £580M this could be very worrying for retired Carillion workers, although, their pensions will be protected by the Pensions Protection Fund (PPF) acting as a pensions “lifeboat” to ensure all pensions are paid out in accordance with its normal rules.

Defined benefit pension funds are at risk of disappearing says Geoff Ho

Pension Protection FundEmployer-sponsored defined benefit pension funds have been struggling under enormous financial pressures for years and the day is coming when there will be none left in the private sector.

The Government’s Pension Protection Fund (PPF) is on standby in case it needs to rescue the 13 UK defined benefit (DB) pension schemes operated by Carillion, the outsourcing and construction group that is fighting for its survival.

Even if Carillion escapes the fate of the Toys R Us, Palmer & Harvey and Monarch Airlines schemes, others will follow soon enough.

Over the last 20 years a toxic combination of low interest rates, stock market crashes, accounting rule changes, Government tax raids (see Mr G Brown) and people living longer have fatally undermined the DB pensions system’s finances.

Even though stock markets have been on an extended bull run, low interest rates have sent pension fund liabilities rocketing.

Rates have started to rise, but it is too late as firms are no longer willing to shoulder the burden of running a DB scheme.

No company formed in recent years offers one.

The private sector DB schemes that have surpluses will eventually end up being sold to insurers, while the underfunded ones will wind up with the PPF.

It will not happen tomorrow, but the sun is setting on the golden era of workers’ pensions and only schemes that expose members completely to the stock market, called defined contribution funds, will remain.

Article source.

*Please note that this article does not necessarily reflect Capital Wealth Partners (CWP) view on the current DB Pensions situation and CWP does not encourage anyone to move away from a DB Pension where it may not be suitable.

What is the pension lifetime allowance and what changes were made in Budget 2017?

Lifetime AllowanceThe Budget 2017 did not cut the pension lifetime allowance as feared. But what is the pension lifetime allowance?

The pension lifetime allowance (LTA) is the overall amount of pension savings that you can have at retirement without incurring tax charges.

The Pensions Advisory Service says: “The Lifetime Allowance is a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – and can be paid without triggering an extra tax charge.”

The lifetime allowance has stood at £1million since April 2016 when it was reduced from £1.25million. It is now scheduled to rise by £30,000 in April 2018.

The Budget said: “The lifetime allowance for pension savings will increase in line with CPI, rising to £1,030,000 for 2018-19.”

An increase in Consumer price index (CPI) is linked to the base rate or the LTA. So an increase in the CPI will lead to a hike in the LTA limit.

Ahead of the Budget, Investec warned that the Chancellor could reduce the lifetime pension allowance “so more pension benefits incur an extra tax charge”.

But this did not happen and there was very little on pensions in the Budget speech given in the House of Commons earlier today.

Mark Henderson, senior partner at online investment site True Potential Investor, said: “It’s hard to remember a Budget for over decade where pensions got fewer mentions…

“That is a relief to pension savers who have lost count of the number of changes to pensions over recent years.

“Slashing annual allowances must have been tempting against lower growth figures and pressure to spend on infrastructure, but we are pleased that the Budget offers a period of calm and stability for pensions.”

Mr Hammond did not reduce the pension annual allowance, which currently stands at £40,000. If your ‘adjusted income’ is more than £150,000, your annual allowance is tapered down.

The Pensions Advisory Service says: “While most people aren’t affected by the lifetime allowance, you should take action if the value of your pension benefits is approaching, or above, the lifetime allowance.

“As pensions are normally a long term commitment, what might  appear modest today could exceed the lifetime allowance by the time you want to take your benefits.

“It may be necessary to take your pension early or stop contributing to the scheme/plan, even though you have not retired, to avoid your benefits exceeding the lifetime allowance.

Source

Watchdog says you CAN move your final salary pension even if advisers say no

Retirement:Pension BindersSavers told by financial advisers that they cannot transfer their “final salary” pensions – even if they are fully aware of the risks – have been granted unexpected support by the City watchdog and Treasury.

Under Government rules you must seek financial advice if transferring a final salary pension, also known as “defined benefit” pension, where the entitlements are valued at £30,000 or more.

Transfers have grown in popularity because moving money into “defined contribution” schemes (the more common pension arrangement) allows greater choice over how to make withdrawals from pension pots. The ability to dodge inheritance tax is another benefit of the latter schemes, as reported here last week.

But savers have found advisers unwilling to help them transfer if they deem it not to be in their best interests.

Now the Financial Conduct Authority – which oversees financial advisers – has issued new guidance for advisers confirming that they should help what the industry has dubbed “insistent clients”. These are people who want to pursue something irrespective of advice not to do so.

The move follows another supportive paper, published in June, laying out similar guidance to advisers suggesting they should make it easier for savers seeking to move their money.

Many people are advised against the move because their final salary plans pay generous, guaranteed incomes rising with inflation. This is difficult to value, as the ultimate benefit will depend on how long the retiree lives.

As a result advisers are extremely cautious about recommending a transfer.

But the FCA’s guidance should help savers struggling to complete a transfer.

The watchdog reiterated that “where a client has received a personal recommendation they may choose to take a different action to the one that was recommended”.

It set out guidance for advisers to follow when helping people who want to act against their wishes, including requiring savers to state in their own words that they understand the implications of going against advice.

Richard Freeman, of Old Mutual Wealth, a provider of pensions and financial advice, said the guidance helped ease the “catch-22 situation”.

He said: “Common sense seems to have prevailed. As long as the original advice meets normal regulatory requirements, and the drawbacks of pursuing an alternative path are made clear, advisers can still support insistent clients.”

According to recent estimates around 210,000 people have moved money from final salary schemes over the last two years. At least £50bn of pension money is thought to left schemes as a result, but that still leaves well over £1 trillion of assets held by British final salary funds.

Original Source

For further support on information found in this article or anything on our website please do not hesitate to contact usvbelow.

Contact Form

  • Please let us know your reason for contact.

A “fundamental” shake-up of pensions tax relief was ruled out by the government

David Gauke MP at 'Tax and British Business'A “fundamental” shake-up of pensions tax relief was ruled out by the government this week, but experts are warning pension savers to expect more “slicing and dicing” of lifetime and annual allowances instead.

Major changes — which would likely have seen tax relief on contributions scrapped for higher earners — have been ruled out by the government for the time being.

Tax relief on pension contributions is currently pegged to the savers’ marginal rate of income tax. So top-rate taxpayers receive 45 per cent tax relief on their contributions, higher earners receive 40 per cent, and basic rate payers 20 per cent. Even non-taxpayers are entitled to claim basic rate relief on contributions.

David Gauke, the newly installed secretary of state for work and pensions, said this week that said he didn’t see “a particular consensus emerging” for an overhaul of retirement savings incentives.

“I wouldn’t see any fundamental changes in the near future,” said Mr Gauke, who moved to the DWP from Treasury, where he held various ministerial roles for seven years.

“The idea of reforming pensions tax relief in the previous parliament was somewhat daunting and recent events haven’t changed that.”

However, Mr Gauke indicated that major reforms were not completely off the table.

He was a minister in Treasury 2015 when former chancellor George Osborne floated radical proposals which could have resulted in the loss of upfront pensions tax relief for higher earners in an attempt to reduce the £21bn annual cost of tax relief for individual savers.

“I am not going to shy away from the fact that getting legislation through the House of Commons would challenging now,” Mr Gauke said on Wednesday, referring to the government’s weak majority.

“But that does give us an opportunity to now think about long-term reform, and to try and build a consensus.”

Pension experts said the government was now more likely to continue to “tinkering” with the lifetime and annual savings allowances, which govern how much can be saved into a pension and benefit from tax relief.

Since 2006, there have been more than a dozen changes to the lifetime and annual allowances which have been whittled down to to £1m and £40,000 respectively.

Calls for reform have been partly driven by concerns that the current system is not effective in encouraging savings among lower earners, as the lion’s share of tax relief is currently paid to the better off.

“David Gauke chose his words very carefully when he ruled out ‘fundamental’ changes to tax relief,” said Kate Smith, head of pensions with Aegon, the pension provider. “What this statement does not rule out is further slicing and dicing of the annual and lifetime allowances — which could be at risk again.”

Patrick Connolly, certified financial planner, with Chase de Vere, added: While it might prove difficult to get through legislation on fundamental changes to tax relief, it could be much easier to get cross party support to pass legislation which is perceived to impact only one wealthier pension savers, such as further cuts to the annual allowance or lifetime allowance.”

Ms Smith said a further reduction in the lifetime allowance to less than £1m would be “absolutely detrimental to pensions”.

“It would cause major complications for defined benefit pension schemes — which would include many public servants — due to the issues with calculating the allowance,” she said.

Such tinkering would stop short of the radical pensions reforms discussed in 2015, which included a switch to one “flat-rate” of tax relief for pension savers, regardless of their income tax band. This would likely have been set at around 30 per cent.

The idea of a “Pensions Isa” was also floated, which would have abolished tax relief altogether. Instead, post-tax income saved into Isa-style accounts would have attracted a government “top up” and could be taken entirely tax-free in retirement. April’s launch of the new Lifetime Isa for savers under 40 works along the same principles.

Find out more about Lifetime Allowance and how Capital Wealth Partners can help you to make the most of your allowance here.

Source

Hung Parliament

iStock-533462679-crop

Theresa May’s decision to call an early election has surprisingly backfired, leaving the country with a hung parliament rather than an increased majority for the Conservative Party. This raises all sorts of questions, not least over the future of Mrs May herself. It also raises significant doubts about the Brexit negotiations, which are due to start imminently.

While markets would have preferred a comfortable Conservative majority, there is a school of thought that a hung parliament may lead to a softer outcome in the Brexit talks. Negotiations with the European Union will be made much more complicated by this result, with the possibility that another election may even be necessary. One thing that is certain is that the cause of Scottish independence has been dealt a significant blow by the Scottish National Party’s substantial losses.

So far, markets have reacted fairly calmly, with Sterling down about 2%, and the FTSE 100 in positive territory boosted by the impact of the weaker currency on companies with large overseas earnings. Stocks with a domestic focus are weaker though, with the FTSE 250 down modestly. Gilt yields have risen modestly, partly on predictions of a softer Brexit but also due to higher inflation expectations.

Whoever is Prime Minister, whether Mrs May or someone else, faces a number of challenges, including how to negotiate Brexit against the backdrop of a hung parliament, while the economy is beginning to weaken amid the ongoing uncertainty and the squeeze on real incomes.

Our investment managers positioning and outlook remains unchanged. Overall, they retain a generally positive view, given the backdrop of solid global growth, with a preference for overseas equities over UK equities, and underweight gilts. They have a sizeable exposure to overseas earners on the FTSE 100, and a meaningful position in gold, in part due to geopolitical uncertainty. They are also positioned for other important global themes, such as the continuing growth of the US and Eurozone economies.

Personal Allowance Increase

The personal allowance – the amount you can earn before paying income tax – will rise with the start of the new tax year from £11,000 to £11,500.

The threshold for paying higher-rate, 40pc, tax will also rise from £43,000 currently, up to £45,000.

But you begin to lose your personal allowance once you start earning over £100,000. It is steadily reduced according to your earnings above that threshold, reducing to zero for those earning £123,000 or more.

Britain's Chancellor of the Exchequer Philip Hammond leaves 11 Downing Street, London

The level at which high earners start to pay additional-rate, 45pc tax, remains unchanged, at income over £150,000.

More than 400,000 people will be taken out of tax entirely as a result of the changes, the Government estimates. The average higher and additional-rate payer will also see real‑term gains, but 1.6 million will have an average loss of £23.

In addition, the band on which National Insurance is levied is changing. From April the 12pc charge will be deducted once you earn £157 a week, a £2 rise on last year.

But the upper limit is also increasing from £827 to £866 a week, which means higher earners will pay the 12pc rate on a greater chunk of their salary.

Brexit Update 2017

Brexit,Teresa May,cwpwealth

Theresa May’s much awaited speech on Brexit yesterday was pretty much as expected.

She laid out a position where the government intended to remove the UK from the single market (and therefore restrictions around its membership, including movement of labour) and focus on negotiating ongoing membership of the customs union – which is essentially, the zero-tariff element of the single market.

Why the Pound has Risen

Sterling has bounced sharply following Ms May’s speech. We think the reason is that he comments point towards government positioning for a softer rather than harder Brexit. For one thing, she confirmed that there would be a final vote in parliament on the deal (which lessens the likelihood that more extreme elements of the government will push for a hard Brexit). But also, Ms May mentioned the government’s desire for a “phased process of implementation” – which hints that the government will try to extend its two-year negotiation window that the signing of Article 50 of the Lisbon Treaty (expected by end-March) will trigger.

What does this mean for sterling assets more generally?

A softer Brexit would lessen the economic damage from the UK’s departure from the EU and supports our view that the UK economy will be fairly robust in the first half of this year, supported not least by ongoing ultra-low levels of official rates. Set against a backdrop in which inflation is rising in the UK, anything which further supports the robustness of the economy, will strengthen speculation that the next move in interest rates will be upwards. We don’t expect this to happen this year but, at the same time, do not rule out this possibility entirely. Certainly, we expect speculation to build through the year of a potential rate hike. This need not be negative for equities if it represents, as we expect it will, a response to a robust economy. Our core view remains that sterling will move into a period of greater support in coming months and the equity market will also continue to remain well supported.

The 12 Point Brexit Plan Outline Today by Theresa May

1. Provide certainty about the process of leaving the EU
2. Control of our own laws
3. Strengthen the Union between the four nations of the United Kingdom
4. Maintain the Common Travel Area with Ireland
5. Brexit must mean control of the number of people who come to Britain from Europe
6. Rights for EU nationals in Britain and British nationals in the EU
7. Protect workers’ rights
8. Free trade with European markets through a free trade agreement
9. New trade agreements with other countries
10. The best place for science and innovation
11. Co-operation in the fight against crime and terrorism
12. A smooth, orderly Brexit

Dental EIS Launch

screen-shot-2016-09-29-at-20-50-33

Enterprise Investment Schemes form an essential part of many client portfolios, however, finding an investment and management team that you can trust can be tricky.

In 2015 Capital Wealth Partners launched its first Dental EIS with the aim of launching a brand new, state of the art, dental practice in the expanding area of Oakgrove, Milton Keynes.

The fund raise became over-subscribed almost immediately and the project practice was launched in January this year, 2016.

The team have had an amazing year and doubled our revenue targets for the first year, breaking all the goals we had set for them. The response locally has been great and the team has really got involved with the local community.

screen-shot-2016-09-29-at-20-46-49We have been put forward for several awards at the Private Dentistry Awards and are hoping to win the New Practice of the Year award which would be a perfect end to our first year.

All investors have now received their tax relief and we are working towards a three years exit plan that will over deliver on the return on investment if the momentum we already have continues

For more information on our EIS investment contact a member of our team and we will be happy to discuss the project with you.

Defined Benefit SSAS

dbssas
Defined benefit schemes have been heralded as a golden type of pension over the years as they offer a guaranteed income in retirement. They benefit from a different set of rules to defined contribution and SIPP pensions and can offer additional flexibility when it comes to the lifetime allowance. So how hard is it to create your own defined benefit scheme? One product that allows you to do this is called a Defined Benefit SSAS. A Small Self Administered Scheme (SSAS) is a pension scheme that can be held my any limited company in the UK. These schemes use the

One product that allows you to do this is called a Defined Benefit SSAS. A Small Self Administered Scheme (SSAS) is a pension scheme that can be held my any limited company in the UK. These schemes use the much-preferred rules of a defined benefit scheme to assess the value of a pension and can form a great piece of pension planning. You will require a trading limited company or sponsor company to take advantage of the scheme, however, if you don’t have one we can create one for you. There are many advantages to this type of scheme, such as the ability to use the pension to create a loan in order to purchase assets outside the pension. As you the pension owner can set the interest rate payable this can be a great access to funding prior to retirement. Usual DB rules mean that when the pensioner dies a widow’s pension would be paid, with a 50% reduction applied. This is not the case with this type of DB scheme as the trust deeds are written to ensure there is no loss of income due to death. The scheme can also transfer the fund value as cash should death occur pre 75 as cash and as an inherited pension post 75.

You will require a trading limited company or sponsor company to take advantage of the scheme, however, if you don’t have one we can create one for you. There are many advantages to this type of scheme, such as the ability to use the pension to create a loan in order to purchase assets outside the pension. As you the pension owner can set the interest rate payable this can be a great access to funding prior to retirement. Usual DB rules mean that when the pensioner dies a widow’s pension would be paid, with a 50% reduction applied. This is not the case with this type of DB scheme as the trust deeds are written to ensure there is no loss of income due to death. The scheme can also transfer the fund value as cash should death occur pre 75 as cash and as an inherited pension post 75.

As you, the pension owner can set the interest rate payable this can be a great access to funding prior to retirement. Usual DB rules mean that when the pensioner dies a widow’s pension would be paid, with a 50% reduction applied. This is not the case with this type of DB scheme as the trust deeds are written to ensure there is no loss of income due to death. The scheme can also transfer the fund value as cash should death occur pre 75 as cash and as an inherited pension post 75.

Advantages to a DBSSAS

  1. The calculation used to assess the value of the pension for lifetime allowance purposes within a DB pension as the 20 x annual benefit. This does not reflect the true cash value of the pension which can be more like 30 x benefit. This means that even though the cash value of the scheme is high, the lifetime allowance value remains low.
  2. When multiple members are added to the same scheme the funds are pooled together to create one investable fund. The pension administrator will keep track of the value of funds each member owns, however, the value of each members fund.
  3. The investment growth each year on the pooled fund then sits inside the pension as pension surplus and it is down to the pension trustees to allocate the surplus to whichever member requires the benefit. This has several advantages, one being that if one member’s pension is fully funded the investment growth can be used to boost the pension of another member. Annual allowance. The way DB scheme annual contributions are calculated is based on annuity rates and are quite complex. However, it is not uncommon for contributions that would normally exceed the annual allowance to me made. This can allow a large pension to be built up very quickly for new scheme members.
  4. Annual allowance. The way DB scheme annual contributions are calculated is based on annuity rates and are quite complex. However, it is not uncommon for contributions that would normally exceed the annual allowance to me made. This can allow a large pension to be built up very quickly for new scheme members.

£750,000 Lifetime Allowance?

Lifetime allowance £750,000

Drastically lower limits on pension savings are being considered by the Government.

Treasury officials are examining cutting the lifetime allowance to £750,000 and reducing the amount that can be put away each year. The taskforce has been charged with bringing down the £34billion annual cost of pension perks.

Experts warn that such a ‘terrifying’ move would hit millions of prudent workers on modest salaries. Those who break the new limits would be hit with a tax charge of 55 per cent.

Malcolm McLean, of actuaries Barnett Waddingham, said:

‘The Government says these changes are all about simplifying the system but in fact it is about bringing in more money. If this is introduced it will hit many more workers – some of them on ordinary salaries.

People don’t know where they are when it comes to putting money away into a pension any more. I don’t understand the need to penalise them for saving for their old age.’

Insiders say up to eight million people with final salary pensions would have the amount they could put away over a lifetime reduced from £1million to anything between £750,000 and £800,000.
Such a cut could hit workers on modest salaries who have already made hefty contributions into a pension, such as junior doctors, senior nurses and teachers.

According to a survey, a 40-year-old earning £40,000, with an existing final salary pension pot of £130,000 would hit a £750,000 limit by the time they hit retirement. This is if they and their employer contribute 15 per cent of salary between them and their pension received 5 per cent annual investment returns.
It is understood that the Treasury is also considering creating a separate system for workers in private stock market-linked schemes.

 

Capital Wealth Partners Limited is a company registered in England and Wales and are authorised and regulated by the Financial Conduct Authority.