Stick or twist? Savers fear for the pension tax-free lump sum<\/b><\/a><\/p>\n\u201cThe government estimate of the amounts likely to be withdrawn are just a fraction of the \u00a3160 billion headline,\u201d said John Ralfe, an independent pensions consultant. \u201cFor the amounts to be so small is the dampest of damp squibs, especially if it undermines security for pension members.\u201d<\/p>\n
The government said: \u201cThere are billions of pounds in surplus funding in private sector DB pension schemes, with three in four schemes in their strongest funding position in decades.<\/p>\n
\u201cOur proposals will unlock funds to boost the economy, remove barriers to growth and ensure working people and businesses are able to benefit from the opportunity these assets bring.\u201d<\/p>\n
Because the money taken from these schemes will be taxed at a rate of 25 per cent, any extra money withdrawn by companies is good news for the Treasury\u2019s coffers. If all \u00a3160 billion had been taken, the government would have made about \u00a340 billion in tax. As it stands, it is set to collect \u00a32.8 billion.<\/p>\n
The proposed change would affect the pension schemes of about 9.4 million savers. It impacts only private DB schemes, which pay a guaranteed and often inflation-linked income for life in retirement. These are increasingly rare outside the public sector because they are so expensive to run. Most private sector workers are now in defined contribution (DC) schemes, where what you get in retirement is based on what you pay in and investment growth.<\/p>\n
The move has been controversial. The rules around how and when companies can access the money held in these schemes have become increasingly stringent since cases such as the Robert Maxwell scandal, but critics say the government\u2019s change will begin to unwind these safeguards.<\/p>\n
In the 1990s it transpired that Maxwell, the billionaire who ran the Daily Mirror, had stolen \u00a3460 million from his companies\u2019 pensions. About 30,000 people\u2019s pensions tumbled in value. Other pension scandals, such as Equitable Life and BHS, have affected hundreds of thousands in total.<\/p>\n
Pension schemes have stricter protocols in place now. Trustees oversee the running of pension schemes, they are supervised by the Pensions Regulator, and the Pension Protection Fund is a lifeboat scheme for when firms go bust.<\/p>\n
Schemes have to meet the \u201cbuy-out\u201d test to see if they have to have the money to pay an insurance company to buy their pension liabilities in full before they can access any of their surplus. <\/p>\n
The government wants to change this to \u201clow dependency\u201d, which means that the scheme can probably still pay out the pensions in full but has a low-level dependency on the company (which also has a legal responsibility to pay if the scheme cannot). Trustees would still need to sign off on any money taken out.<\/p>\n
\u201cWhile the policy change has potential upsides, there are also some pretty obvious risks,\u201d said Tom Selby from the investment platform AJ Bell. \u201cRobert Maxwell and other historic pensions scandals still live long in the memory and these reforms have more than a slight whiff of a pensions raid \u2014 albeit a legal one backed by the government.\u201d<\/p>\n
Others think that the rules haven\u2019t gone far enough. Steve Webb, a former pensions minister now at the consultancy Lane Clark & Peacock, said that many of these pension schemes were now in the \u201cend game\u201d and could relatively accurately calculate how much they would need to meet their liabilities in the future.<\/p>\n
\u201cIt\u2019s no good for members who are 80 now if the scheme runs for another 20 years and then pays out its surplus, because they won\u2019t be around to see the money,\u201d Webb said. He believes that the payouts offered by the Pension Protection Fund should also be increased to completely protect savers.<\/p>\n
\u201cTaking money out of these schemes is a different ball game to the 1990s. Some of these schemes have billions and while not every penny freed up would boost British industry, some of it would.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"A plan to unleash billions of pounds tied up in pensions will do little to boost economic growth,…\n","protected":false},"author":2,"featured_media":322460,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[51,474,2499,16,15],"class_list":{"0":"post-322459","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-personal-finance","11":"tag-uk","12":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114981781167655631","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/322459","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=322459"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/322459\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/322460"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=322459"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=322459"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=322459"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}