%VIRTUAL-SkimlinksPromo%Plans for giant "pooled" pension schemes with the potential to boost people's chances of getting a better retirement outcome have been unveiled.
Legislation unveiled in the Queen's Speech will enable "collective schemes" that spread the risk between members and could offer them greater stability over the eventual size of the pension they will end up with, while limiting costs to employers because of their economies of scale.
Similar pooled schemes already exist in the Netherlands and a consultation into collective pensions had previously been launched by the Government.
The new type of pension would be a middle ground between the two types of scheme which currently exist - defined benefit (DB) schemes, which offer people a guaranteed level of income when they retire and defined contribution (DC) schemes, which put the burden of risk onto the employee in terms of the eventual size of their pension income.
DB schemes, such as final salary pensions, have been in decline in favour of DC schemes, as employers have found them expensive to run as people live for longer.
The Government plans to define schemes in terms of the "pensions promise" they offer to people, to clearly spell out whether the pension they are paying into offers them a full, cast iron promise about their retirement income, a promise on part of their pot or income or no promise at all about what they will end up with.
As announced in the Budget, the Queen's Speech also confirmed that people aged over 55 will be given new freedoms to cash in their pension as they see fit, subject to their marginal rate of income tax.
This will mean that from next April, people can use their pension pot like a cashpoint and they will not feel forced into using the money to buy a fixed retirement income called an annuity.
More than 300,000 people who retire every year with DC pension savings will get a much wider choice about how they access their pension savings as a result of the changes.
Everyone with a DC pension pot who is approaching retirement will be offered free and impartial help through a "guidance guarantee" as part of the new legislation.
Measures to boost savers that were previously announced in this year's Budget were also confirmed in the Queen's Speech.
New "super Isas" will come into place from July 1, when the limit increases to £15,000 and savers will be given the freedom to invest the full amount tax-free in a cash or a stocks and shares Isa, or any combination of the two.
The Government will extend the list of qualifying investments for Isas to include peer-to-peer (P2P) loans.
At the same time, annual subscriptions for children's savings, in the form of Child Trust Funds (CTFs) and Junior Isas, will increase to £4,000.
Plans to boost people on low incomes by reducing the tax they pay on their savings interest were outlined.
Around 1.5 million people are expected to gain by an average of £156 and more than one million of these people, with total incomes of less than £15,500, will no longer pay any tax on their savings income.
From April next year, the starting rate of savings income tax will be lowered from 10% to zero and the band to which it applies will be extended to £5,000, from £2,880 in 2014.
Meanwhile, from January 2015, Treasury-backed body NS&I will launch one and three-year fixed-rate savings bonds for people aged 65 and over, which will be taxed in line with other savings income.
Interest rates will be decided at the Autumn Statement, but for costing purposes, the assumption based on current market conditions is that the one-year bond will pay a rate of 2.8% AER and the three-year bond will pay 4.0% AER, with investment limits of £10,000 per bond.
Seven retirement nightmares
'Pooled' pension schemes announced
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.
The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.
Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS).
Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of £22,330. Whether you are retired or not, the best way to tackle debt problems is head on.
Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors.
Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.
The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.
The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.