Pensions news Workplace pension charges
THE DEPARTMENT for Work and Pensions has tabled an amendment to the Pensions Bill to require pension providers to disclose all transaction costs in defined contribution workplace pensions. This will enable those running such schemes to see exactly how much they are paying for asset management services to get the best value for scheme members. The Minister for Pensions, Steve Webb, said: “For the first time, we are shining a light into the murky corners of the pensions industry to make sure savers know what is happening to their money. A lack of transparency around the true costs of trading can prevent schemes from securing value for money for their members.” The Government will publish its response to the consultation on charges, along with proposals on quality and transparency in workplace pension schemes soon. This will contain further details about the implementation and timing of the measures that have been announced.
Annuity market review A REVIEW by the Financial Conduct Authority (FCA) reveals that the annuities market is not working well for consumers (
www.fca.org.uk/news/fca-finds-annuity-market-not- working-for-consumers-competition-market-study-launched). Review findings include: l of those who do not switch, eight out of ten people could get a more generous retirement income by shopping around and buying an annuity from a different provider l on average the benefit of switching is equivalent to having an extra £1,500 saved into a pension just before retirement l the situation is worse for people with small pension pots (i.e. less than £5,000 saved at retirement) as they have less choice when shopping around as only a handful of providers offer them annuities. Currently, 60% of people buy an annuity from their current provider, with about
420,000 annuity sales every year. The FCA found that for a pension pot of £17,700 (the average size in the review), buying an annuity from the person’s current pension provider would return an average annual income of £1,030. However, by shopping around for a better rate and switching provider, that annual income would increase by 6.8%, or £71 to £1,101. One in six people could increase their retirement income by more than 10% if they changed provider. For people with severe health conditions the figure is potentially much higher. The findings from the review are part of the first stage of the FCA’s review into retirement products, which will now continue with a competition market study and further supervisory work. Interim findings will be published in the summer of 2014.
DB scheme members ACCORDING TO figures from the Office for National Statistics (ONS), the number of active
members of defined benefit (DB) schemes who have contracted-out of the additional state pension fell between 2008 and 2012. The number dropped from 2.4 million to 1.4 million, while the percentage of active members in contracted-out schemes dropped from 91% to 84%.
Members making higher contributions, and those in larger schemes, are more likely to be contracted-out. Although just 40% of schemes with 12–99 members were contracted out, this rose to 84% for schemes with 5,000 or more members. Under legislation in the Pensions Bill, contracting-out for DB schemes will end in 2016.
34 PayrollProfessional FURBS and NICs ruling
THE UNITED Kingdom’s Supreme Court has recently handed down judgment in a case concerning national insurance contributions (NICs) liability of an employer’s contributions to a funded unapproved retirement benefit scheme (FURBS). The company, Forde and McHugh Limited, transferred cash and treasury stock worth £170,000 to the pension scheme, following which HM Revenue & Customs (HMRC) contended that NICs were due in respect of these assets. The amount of NICs involved was £20,000. The matter was initially heard by the Upper-tier Tax Tribunal which decided in favour of the company. A subsequent Court of Appeal hearing took place and a decision was issued in May 2012 in favour of HMRC. The decision was appealed to the Supreme Court and the hearing took place in January 2014. The decision may be relevant to other situations where HMRC is seeking NICs on money spent by companies for the benefit of their directors and employees. Where companies have made payments on account in the past, these should now be repaid to the company (together with interest). Micky Ackenson, Founding partner
at Charterhouse (Accountants) LLP, advisors to the company, commented: “This ground-breaking decision will have repercussions across the tax planning and pension planning industries and is a victory for hard-working business owners who need to use their business assets to finance their retirement.”
Correction The website address for Fiona Karlin on page 1 of the March issue of PayrollProfessional should have read
www.momentumpfs.com.
pensionsnews
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