'Pooled' pension schemes announced



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

Seven retirement nightmares