Tough year for final salary schemes
Conditions for final salary schemes will be tough in 2017.
The future of the schemes has been highlighted this year with the collapse of BHS and the future or steelworkers’ retirement deals.
The Pension Protection Fund said that the collective deficit of the UK’s 5,794 final salary schemes was £222bn at the end of March, little changed from a year earlier. One of the major concerns of final salary schemes is that people are living longer meaning the companies have to pay out or longer thus making the scheme more expensive. Another major concern is the uncertainty in the economy. Pensions schemes rely on the employer’s contributions to be successfully invested.
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Pension Cold Caller Crackdown
Pension cold callers could face £500,000 fines as part of planned ban.
The government plans to ban cold calls offering exotic investment opportunities to people cashing in their pension pots.
Savers can now cash in their pension pot from the age of 55. Since the access was permitted for the first time last year, people were taking out sums averaging £20,000. The influx of withdrawals have attracted fraudsters offering false investment opportunities.
Many people with defined benefit schemes will be allowed to transfer to a private scheme to allow access from the age of 55.
Life Time ISA
A lifetime ISA (LISA) will be available in April 2017 to give some savers the chance to earn up to £32,000 in government bonuses.
It is a saving product designed for people saving for a new house or saving for retirement. Savers can only open a Lisa between the ages of 18 and 40. You can pay in up to £4,000 a year, but no more. At the end of the first year, the government will add a 25% bonus. From 2018/19, this bonus will be paid monthly. Since you can continue paying into a Lisa up until the age of 50, the potential eventual bonus is up to £32,000.
In addition to the government bonus, LISA’s are expected to pay out up to 1% interest
If you use the savings to buy a home, the property must be less than £450,000. The Government bonus can stack with partner’s bonuses potentially doubling the bonus.
You can withdraw the money penalty free when buying your first home, you are over 60, or if you have a terminal illness. Should you wish to withdraw the money sooner, you’ll have to pay a hefty exit fee of 25%
1% Pension Cap
There are new rules for pension exit fees to be capped at 1%
The new rules will affect anyone taking money out of a personal pension from 1 April 2017.
Those taking out new pension contracts will face no early exit charge at all.
The 1% cap on early exit charges for existing pensions, and the 0% cap for new contracts, will mean that current and future savers will not be deterred by these charges from accessing their pension pots.
Previously some pension providers were charging fees of up to 10%, after the government announced that anyone over the age of 55 could withdraw as much as they wanted from their pensions, subject to income tax.