The High Court has ruled that arrangements which allow people to access their pension fund through loans are illegal.
In June, The Pensions Regulator had appointed independent trustee firm Dalriada Trustees to seize control of the bank accounts of six schemes used for pension reciprocation due to concerns the loans could be legally void. In July, a High Court judge froze over £1m of fees charged to members of pension reciprocation plans administered by Ark Business Consulting and two related entities.
The court ruled that maximising pension value arrangements, which the schemes use to allow investors to access up to 50 per cent of the value of their pension pot, are legally void.
Law firm McGrigors, which is acting on behalf of Dalriada Trustees, says there is also a prospect of individuals who entered into the arrangements having to repay the money they borrowed!
Read the full article here: http://www.moneymarketing.co.uk/pensions/high-court-rules-unlocking-schemes-contravene-pensions-law/1043412.article
Don’t take a chance. If you want to release your tax free lump sum from your pension do it with: https://www.pensionsmatter.org.uk:1443/pensions_release/index.php
Liverpool Victoria has a Protected Retirement Plan which is written under drawdown pension rules. At the start of the plan you have a free choice of income between taking nothing, and under capped drawdown taking the maximum allowed under Government Actuary’s Department (GAD) rules.
If you have already secured £20,000 per annum of pension income then under flexible drawdown there are no income limits which means you can access your remaining pension fund as cash.
The Protected Retirement Plan allows you to choose a term between 3 and 25 years.
As long as you are alive at the end of the chosen term a guaranteed maturity value will be available. You can use this fund to buy an annuity, transfer to another drawdown pension arrangement, or invest in another Protected Retirement Plan (if eligible).
If you qualify for flexible drawdown can choose no maturity value at all or can choose to take the guaranteed maturity value as a final income payment, subject to income tax.
Death benefits under the Protected Retirement Plan offer a range of options that can be used to continue to pay an income or a lump sum to a spouse, civil partner or a financial dependant if you die before the plan maturity date.
Make an enquiry now at: https://www.pensionsmatter.org.uk:1443/pensions_benefits/index.php
Generally, when pension savers reach retirement, they are offered the opportunity to convert their pension pot into an annuity. Their insurer will write to them with a quote but each individual has the right to reject this offer and search the market for a better annuity rate. This is called the open market option. But quotes are often valid for only 14 days; with the rapid decline in gilt yields, annuity experts are urging people at the point of retirement to act quickly.
Experts say it is essential for people not to only shop around for the best rate but also take advantage of the enhanced annuities that are offered to people with medical conditions which may shorten their lives.
Research shows that far too few people take advantage of enhanced annuities which can mean a bigger income even with medical conditions as common as high blood pressure or diabetes. One in five people has an enhanced annuity but up to 60 per cent could qualify. The big insurance companies don’t tell people about them.
Last week, the Government said that one in three children born this year would live to be 100. Increased longevity makes it even more important for pension savers to consider their annuity options and in particular to protect their annuity against inflation by buying an index-linked product rather than fixed.
With retirement income needed to cover 20 to 40 years rather than just five to 15, it is vital that the effects of inflation are assessed. Many retirees opt for a fixed-rate guaranteed annuity, as this is the only option that they are aware of.
However with annuity rates so low, there are deferred purchased annuity products available which give the same amount of income as a conventional annuity and with a guaranteed future maturity date many retirees could benefit from future higher annuity rates. These products have better death benefits too. If you are retiring you should really obtain a comparative quote from one of these deferred schemes. Complete your details here:
https://www.pensionsmatter.org.uk:1443/pensions_benefits/
The ability to take a tax-free lump sum at retirement is supposed to be one of the major benefits of having a personal pension. However, research from pension provider Prudential has shown that one in 10 savers who took a lump sum at retirement later regretted they had done so.
Most people with a company or private pension fund choose to take a tax-free lump sum at retirement, and for many this proves to be the right thing to do. But, some pensioners are beginning to regret the way they used the tax-free cash.
“The days of buying a new car or going on a once-in-a-lifetime holiday may be gone, to be replaced by making savings and investments with the lump sum to supplement retirement income,” said Vince Smith Hughes, the head of business development at Prudential.
Overall, 43 per cent of pensioners quizzed by Prudential said that they were living in a financially “cautious” way in retirement, worried that their savings pot will not see them through to the end of their lives.
Prudential’s research also found that of those who took a lump sum at retirement, a third (33 per cent) used all or part of it for home improvements, 31 per cent paid for a holiday, and 19 per cent bought a new car.
If you are over 55 you don’t need to wait to access the tax free cash lump sum. You are able to use the tax free cash now for any reason and you still have time to build up your pension pot again to ensure you have sufficient income at retirement. Find out how much cash you can release here: https://www.pensionsmatter.org.uk:1443/pensions_release/index.php
Some concise points from Unison to the idea of early cash release are:
Pension scheme take up rates amongst public sector workers is approximately 85% which suggests that lack of flexibility is not a particular concern for public sector workers and that they value the need
to save for a pension.
Despite Unison’s relative lack of support for allowing early access to pension savings UNISON can to a degree see the rationale for potentially allowing access in a genuine case of “severe” financial need where put simply, the case for accessing pension benefits is compelling. Possible examples for consideration could include to avoid house repossession, to prevent bankruptcy or the serious illness of a dependent child that involves significant medical costs.
If early access to pension benefits is permitted in any form it should apply equally to both defined benefit and defined contribution pension schemes so as not to potentially discriminate and create unnecessary advantages of one type of pension scheme over another.
UNISON does not believe there to be a necessity for allowing early access to pension savings, except perhaps, in the case of “severe” financial hardship where it can be demonstrated that there are compelling reasons for allowing early access.
It remains then that you can only access early cash release if you are aged 55 or over. You can access the cash from most UK pension schemes, including Local Authority, Local Government and Civil Service schemes provided you have left service. Visit the Pensions Matter pension cash release page here: http://www.pensionsmatter.org.uk/pensions_release/ to find out more.
Mark Hoban, Financial Secretary to the Treasury published the Government’s response to the call for evidence on early access to pension savings.
The Government is committed to improving flexibility over savings, to encourage individuals to either start saving or save more. Following consideration of the responses received, the Government has concluded that early access to pension savings should not be considered at the present time.
However, responses showed support for the feeder fund model and the Government will engage with industry to further develop innovative workplace savings models that will encourage saving for both medium term needs and for additional retirement income. In addition, the Government will explore reform to trivial commutation rules to improve flexibility for those with very small levels of savings in personal pension schemes. This means that access to tax free cash will still be available to those aged 55 or over. Companies offering loans from pensions are still unrecognised, unregulated UK financial products and should be avoided by all UK pension savers.
The Financial Secretary said:
“The Government is committed to encouraging saving and wants to give individuals greater flexibility in saving for retirement. While early access has some merits, there is insufficient evidence to suggest it would act as an incentive to save more into pensions. We will work with industry to develop workplace saving to supplement pension savings. In addition, we will explore other ways of making pension tax rules simpler and more flexible, for example by making it easier to deal with small pension pots.”
A report by the Office for National Statistics (ONS) has revealed the number of people aged 65 and over in employment has doubled in the last decade. According to the ONS, the number of over 65s still in work has risen by almost half a million in the last 10 years. Approximately 412,000 people over the age of 65 were in work in 2001 – this rose to 870,000 at the end of 2011. Many reduce their hours and therefore are keen to top up their savings. One way of doing so is to release the tax free cash held in their pensions. As they have no requirement to tie themselves into poor annuity rates but can use their tax free cash it is now possible to do so.
One ONS statistician comments: “Over the last decade older workers are making up an increasing percentage of the total workforce in the UK, doubling from 1.5% in 2001, to 3% in 2010.
The report comes shortly after the Government confirmed that the Default Retirement Age (DRA) is to be phased out this year. The move will allow the over 65s “the freedom to work for longer”, while at the same time providing a boost to the UK economy. The change means that from 6th April 2011, employers will no longer be able to issue notifications for compulsory retirement using the DRA procedure.
Every taxpayer working in private industry will be forced to hand over almost £1,600 to pay for the public sector pension black hole unless the system is reformed, it has been claimed. Taxpayers working for private companies would have to pay for the generous retirement packages of state workers under current plans.
A review led by Lord Hutton of Furness, to be published tomorrow, is expected to recommend that state workers lose their generous final salary pension schemes in favour of a system based on their average career earnings. His findings are likely to form the basis of the Government’s reform of public sector pensions, which had a black hole of more than £3 billion last year alone.
Analysis by the Office for Budget Responsibility (OBR) suggests that this figure – the gap between contributions made by public sector employees and the amount paid out by schemes in a single year – is on course to more than double to £7 billion in the 2015/16 financial year.
This works out as an average cost to each of the more than 23 million taxpayers in the private sector of £1,556 over the next four years. They would be paying for pensions for six million state employees, who have traditionally been able to retire far earlier and on more generous entitlements than their private sector counterparts.
Gavin Barwell, Conservative MP for Croydon Central, said that the figures highlighted the importance of tackling the gap between private and public pension provision. “This shows why we urgently need to look at public sector pensions to make them fair and sustainable both to the taxpayer and to people who devote their life to public service,” he added.
On the 25th February the Government’s consultation into early release of pension cash was completed. The idea of the consultation was to gain opinion on whether allowing individuals access to their pension cash early would be a good thing. Several different forms of early access have been proposed, and each has potentially varied effects on the incentive to save into a pension, and net effects on incomes at retirement.
Four main options have been identified for allowing more flexible access to private pensions:
1. A loan model allowing individuals to borrow from their pension fund
2. A permanent withdrawal model, allowing access to funds without repayment obligations –possibly in limited circumstances, such as in cases of hardship
3. Early access to the 25 per cent tax-free lump sum currently available from age 55
4. A feeder-fund model, creating a more flexible savings product linking liquid savings products, such as ISAs, and pension savings together into a single account.
We thing option 3 would fit in with the well established UK pension system. In times of hardship, particularly under today’s economic climate allowing individuals to access their tax free cash early would be a good thing. Once the Government publish their finding we will post them here.
You may have been tempted by the 50% loan that you can raise from your pension plan. Companies are even offering no fees and guaranteed acceptance! These loans come at a very high price…your future financial security. In many cases you sign over your pension rights to a third party who then effectively own your pension and that means any future cash lump sum AND income from it in order to repay the loan. These products are not regulated here in the UK, with due reason, and therefore you would not be covered by any compensation scheme such as the Financial Services Compensation Scheme if you find out later that the loan may not have been the right thing for you. My advice, avoid them and don’t touch them with a bargepole!
