state of the nation pension challenges and opportunities ... · state of the nation pensions &...

This is for financial adviser use only and shouldn’t be relied upon by any other person.

STATE OF THE NATIONPENSION CHALLENGES AND

OPPORTUNITIES IN 2017

STATE OF THE NATION

• State pensions

• Pension freedoms

• Automatic enrolment

• Pensions & D-i-v-o-r-c-e

• Rise of the ISAs

• Budget predictions…

AGENDA

STATE OF THE NATIONSTATE PENSIONS


0

100

200

300

400

500

600

2016/17 2021/22 2027/28 2037/38 2047/48 2057/58 2067/68

Total State Pensions

All pensions + housing/DLA/PIP/AA

£496 billion

£440 billion

Source: DWP


Foundation amount

Source: The pension advisory service, April 2017

Total £159.55 p.w.

Current entitlement

Notional STP entitlement

Future entitlement

BSP

Graduated pension

SERPS

S2P

NINI

NINI

NINI

NI

NINI

NINI

NIDelay

DelayDelay

STATE OF THE NATION

• Changes in criteria:

• Minimum contribution years:

• NI record to get full pension:

• Defferal:

STATE PENSIONS

1 year to 10 years

30 years to 35 years

5 weeks/10.4% p.a.to 9 weeks/5.8% p.a.


Recommendations

Increase State Pension Age to 68

Accelerated timetable 2044 to 2037

Scrap the ‘triple lock’

✓

✓

✓


1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960

60

66

61

62

63

64

65

Year of Birth

SPA

MenWomen

WASPIWomen Against State

Pension Inequality

STATE OF THE NATION

Planning points:

• Changing goalposts will drive advice

• Class 3 NICs useful for some

STATE PENSIONS

STATE OF THE NATIONPENSION FREEDOMS


Source: Citizen’s Advice Life after Pension Choices August 2016

29%of total

32% of >£100K+

Figure 2: How consumers plan to spend their pension savings

Putting it in the bank:


Planning points:

• Timing and taxation of withdrawals

• Sustainability

• Transfer advice

STATE OF THE NATIONAUTOMATIC ENROLMENT


0

1

2

3

4

5

6

7

8

9

Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Mil

lio

ns

Eligible jobholders automatically enrolled into an automatic enrolment scheme

Source: The Pension Regulator, Declaration of Compliance Monthly Report, August 2017.


Source: The Pension Regulator


Govt review: our response

• Contribution rates – must go up!

• Self-employed participation

• Net pay arrangement schemes


Planning points:

• Employers still need help!

• Scheme reviews

• Self-employed

STATE OF THE NATIONPENSIONS & D-I-V-O-R-C-E

30,000

50,000

70,000

90,000

110,000

130,000

150,000

170,000

1990 1995 2000 2005 2010 2015

Total Wife Husband

Number of opposite sex couples divorcing: On petition of/Party to whom granted, all decrees

Source: ONS

STATE OF THE NATIONPENSIONS & DIVORCE

Source: ONS

Divorces of opposite sex couples:Men and Women age 60 and over

8,000

10,000

12,000

14,000

16,000

18,000

1985 1990 1995 2000 2005 2010 2015


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


Husband’s Sipp £970,696Wife’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.


Planning points:

• Divorcees need help!

• Solicitors need help!

• A growing and potentially lucrative market…



“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 oneadviser for every 5,000 people.”

Source: Resolution with the Personal Finance Society “Unlock the divorce and separation market”


“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 NATIONRISE OF THE ISAS


0

50

100

150

200

250

300 Pensions Annual Allowance(excluding taper)

Adult ISA Subscription Limits

Source: HMRC: Individual Savings Account (ISA) Statistics, April 2017 & Royal London

0

50

100

150

200

250

300 Pensions Annual Allowance(excluding taper, includingMPAA)

Adult ISA SubscriptionLimits


Source: HMRC: Individual Savings Account (ISA) Statistics, April 2017 & Royal London


Cash ISA

Stocks & shares ISA

Junior ISA

Help to buy ISA

FInnovative inance ISA

Pensions ISALifetime ISA

LISA

Junior ISA

Help to Buy: ISA

Lifetime ISA

Cash ISA

Stocks and Shares ISA

Lifetime ISA

Source:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/579862

/Savings_product_infographic_Christmas_2016_v7.pdf

Premium Bond

£4K


18-40

25%

LISA50 LISALISA

Source: HMRC, Lifetime ISA: updated design note

LISA

After 12 months, first UK home up to

£450K

From age 6060

Terminal ill-health(<12 months to live)

LISA to LISA transfer

Full withdrawals tax and penalty

free if:

Otherwise a 25% charge will apply

Source: HMRC, Lifetime ISA: updated design note


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 NATIONBUDGET PREDICTIONS

STATE OF THE NATIONBUDGET PREDICTIONS…

5

4

32

1

Tax-free cash

Employer NICs

LTA

Tapered AA

AA

1. AA2. Tapered AA3. LTA4. Employer NI5. PCLS

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