STATE OF THE NATION PENSION CHALLENGES AND OPPORTUNITIES IN 2017 This is for financial adviser use only and shouldn’t be relied upon by any other person.
STATE OF THE NATION AGENDA • State pensions • Pension freedoms • Automatic enrolment • Pensions & D-i-v-o-r-c-e • Rise of the ISAs • Budget predictions…
STATE OF THE NATION STATE PENSIONS
STATE OF THE NATION STATE PENSIONS Total State Pensions All pensions + housing/DLA/PIP/AA 600 £496 billion 500 £440 400 billion 300 200 100 0 2016/17 2021/22 2027/28 2037/38 2047/48 2057/58 2067/68 Source: DWP
STATE OF THE NATION STATE PENSIONS Delay Delay Total £159.55 p.w. Delay NI NI NI NI NI S2P NI SERPS NI Foundation NI amount Graduated NI NI pension NI BSP NI Current Future Notional STP entitlement entitlement entitlement Source: The pension advisory service, April 2017
STATE OF THE NATION STATE PENSIONS • Changes in criteria: 1 year to 10 years • Minimum contribution years: • NI record to get full pension: 30 years to 35 years 5 weeks/ 10.4 % p.a. • Defferal: to 9 weeks/ 5.8 % p.a.
STATE OF THE NATION STATE PENSIONS Recommendations ✓ Increase State Pension Age to 68 ✓ Accelerated timetable 2044 to 2037 ✓ Scrap the ‘triple lock’
STATE OF THE NATION STATE PENSIONS SPA 66 65 Men Women 64 63 WASPI 62 Women Against State 61 Pension Inequality 60 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 Year of Birth
STATE OF THE NATION STATE PENSIONS Planning points: • Changing goalposts will drive advice • Class 3 NICs useful for some
STATE OF THE NATION PENSION FREEDOMS
STATE OF THE NATION PENSION FREEDOMS Figure 2: How consumers plan to spend their pension savings Putting it in the bank: 29% of total 32% of >£100K+ Source: Citizen’s Advice Life after Pension Choices August 2016
STATE OF THE NATION PENSION FREEDOMS Planning points: • Timing and taxation of withdrawals • Sustainability • Transfer advice
STATE OF THE NATION AUTOMATIC ENROLMENT
STATE OF THE NATION AUTOMATIC ENROLMENT Eligible jobholders automatically enrolled into an automatic enrolment scheme 9 Millions 8 7 6 5 4 3 2 1 0 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Source: The Pension Regulator, Declaration of Compliance Monthly Report, August 2017.
STATE OF THE NATION AUTOMATIC ENROLMENT Source: The Pension Regulator
STATE OF THE NATION AUTOMATIC ENROLMENT Govt review: our response • Contribution rates – must go up! • Self-employed participation • Net pay arrangement schemes
STATE OF THE NATION AUTOMATIC ENROLMENT Planning points: • Employers still need help! • Scheme reviews • Self-employed
STATE OF THE NATION PENSIONS & D-I-V-O-R-C-E
STATE OF THE NATION PENSIONS & DIVORCE Number of opposite sex couples divorcing: On petition of/Party to whom granted, all decrees 170,000 150,000 130,000 110,000 90,000 70,000 50,000 30,000 1990 1995 2000 2005 2010 2015 Total Wife Husband Source: ONS
STATE OF THE NATION PENSIONS & DIVORCE Divorces of opposite sex couples: Men and Women age 60 and over 18,000 16,000 14,000 12,000 10,000 8,000 1985 1990 1995 2000 2005 2010 2015 Source: ONS
STATE OF THE NATION PENSIONS & DIVORCE WS v WS H: SIPP/Money Puchase – CEV £970,696 W: DB – CEB £3,064,154 Both pensions in payment Wanted to avoid a pension sharing order as this “would take the husband well over the lifetime allowance with severe taxation consequences.” Judge decided to use Duxbury calculation to determine the offsetting amount - £425,000 . Source: Family Law Week: WS v WS [2015] EWHC 3941 (Fam) http://www.familylawweek.co.uk/site.aspx?i=ed158758
STATE OF THE NATION PENSIONS & DIVORCE Husband’s Sipp £970,696 Wife’s DB £3,064,154 TOTAL £4,034,850 Divide by 2 £2,017,425 Possible share £3,064,154 - £2,017,154 £1,046,729 £621,729 more than the amount awarded! Figures shown are for illustrative purposes only.
STATE OF THE NATION PENSIONS & DIVORCE Planning points: • Divorcees need help! • Solicitors need help! • A growing and potentially lucrative market…
STATE OF THE NATION PENSIONS & DIVORCE “Nearly one quarter of a million people face divorce in the UK each year, with the majority needing financial assistance . Yet there are just 42 accredited financial adviser specialists in family law – that’s one adviser for every 5,000 people .” Source: Resolution with the Personal Finance Society “Unlock the divorce and separation market”
STATE OF THE NATION PENSIONS & DIVORCE “Financial Adviser Specialist Accreditation is open to associate members of Resolution who hold a QCF Level 4 plus AF3/G60 and a valid Statement of Professional Standing (SPS).” Source: Resolution with the Personal Finance Society “Unlock the divorce and separation market” http://www.resolution.org.uk/editorial.asp?page_id=1013
STATE OF THE NATION RISE OF THE ISAS
STATE OF THE NATION RISE OF THE ISAS 300 Pensions Annual Allowance (excluding taper) 250 Adult ISA Subscription Limits 200 150 100 50 0 Source: HMRC: Individual Savings Account (ISA) Statistics, April 2017 & Royal London
STATE OF THE NATION RISE OF THE ISAS 300 Pensions Annual Allowance (excluding taper, including 250 MPAA) 200 Adult ISA Subscription 150 Limits 100 50 0 Source: HMRC: Individual Savings Account (ISA) Statistics, April 2017 & Royal London
STATE OF THE NATION RISE OF THE ISAS C ash ISA H elp to buy ISA S tocks & shares ISA F Innovative inance ISA J unior ISA L ifetime ISA P ensions ISA
LISA Premium Bond Cash ISA Junior ISA Stocks and Shares ISA Help to Lifetime Buy: ISA ISA Lifetime ISA Source:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/579862 /Savings_product_infographic_Christmas_2016_v7.pdf
STATE OF THE NATION RISE OF THE ISAS £4K 50 18-40 LISA LISA LISA 25% Source: HMRC, Lifetime ISA: updated design note
After 12 months, first Full withdrawals UK home up to tax and penalty £450K free if: 60 From age 60 LISA Terminal ill-health (<12 months to live) Otherwise a 25% charge will apply LISA to LISA transfer Source: HMRC, Lifetime ISA: updated design note
STATE OF THE NATION RISE OF THE ISAS Our view: • LISA is a welcome alternative savings option • It may not be suitable for retirement savings: Access penalty Investment structure Phased withdrawal • Combination of plans likely to be useful option • Continued need for quality financial advice
STATE OF THE NATION BUDGET PREDICTIONS
STATE OF THE NATION BUDGET PREDICTIONS… 1 AA 2 Tapered AA 3 LTA 4 Employer NICs 5 Tax-free cash
1. AA 2. Tapered AA 3. LTA 4. Employer NI 5. PCLS
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