All change for employee’s pensions

It has been some time since employers were required to provide a stakeholder pension fund for their employees to contribute to should they so wish. The government had hoped that the provision of this arrangement in the employment contract would encourage employees to make better provision for their retirement, but the voluntary nature of it ensured that although all contracts made reference to a provision, very few made use of it.

In order to address this, the Pensions Act 2008, which received Royal Assent in November 2008 aims to address this. It is not expected to come into force until 2012 but the implications for employers will be far reaching. Amongst other things employers will have to ensure their pension provision meets minimum standards and all employees will automatically be enrolled into the scheme. Perhaps of even more significance to employers is that they will be required to pay compulsory minimum contributions on behalf of their employees. There will be provision for employees to opt out but employers cannot provide financial incentives to do so, nor seek the employee’s intention on this question when interviewing a candidate.

Inside this issue:

Accepting pension income - Could this be your costliest mistake?

All change for employees’ pensions - We help you keep up to date with legislation

Paying PAYE on time - HMRC may now fine late payment

Wealth Creation Specialist - December 2009 Newsletter

The contents of these articles represent the opinions of the authors, and not of Professional Solutions Group Ltd. Neither Professional Solutions Group Ltd nor Tenet Connect Ltd. are responsible for the accuracy of the content of the articles. These articles do not constitute a recommendation to purchase any of the products mentioned.

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Accepting the income offered by your pension company on retirement

This is potentially one of the most costly mistakes you could make and it could bring about otherwise avoidable catastrophe for your spouse or partner.

When you started your pension plan, you would have given an expected retirement date. This may not be the date you end up retiring, but nonetheless your pension company should get in touch a month or two before that date.

They will offer you an annuity. This is the product where you swap your pension fund for a fixed income. Their offer is very unlikely to offer:

1. The highest income available in the wider market place.
2. The mixture of benefits that fit your needs and circumstances.

Your pension company is obliged to do nothing more than make you an offer.

A quick check today showed a 22% gap* between the best and the worst for a 65 year old male. So you stand to lose as much as a quarter of you whole retirement income by not asking an Independent Financial Adviser to shop around for you.

A comparison between the above and an annuity which would provide an increased income each year and a spouse’s pension could cut the income by a further 50% or more.

Here are some of the questions you need to ask before committing to this irreversible spending decision:

1. Do I need my income to increase each year? This will depend on your state of health and age at retirement.
2. Do I need to make provision for my spouse/partner should they survive me? What provision do they have?
3. Is it wise to take the lump sum I am being offered and take a lower income?
4. Do I want my income to be paid for say 5 or 10 years from when it started should I die prematurely?
5. Am I comfortable with my pension dieing with me?

If the answer to the last question is no then there are alternatives that should be discussed with a properly qualified Independent Financial Adviser.

In any event, consult us before making a decision or you could live to regret it!

* Based on a male aged 65 wanting a level income which would be guaranteed for 5 years from commencement even if he were to die

Information Source: Exchange. 11.7.08

Paying PAYE on time

HMRC are warning employers that from May 2010 they may have to pay a penalty if they do not pay their PAYE on time. These are generally due each month, on time and in full.

HMRC will implement late payment penalties for payments due from May 2010. From then on, employers may have to pay penalties if they make more than one PAYE payment late in a tax year. The new penalties will apply to all employers, including large employers (those with more than 250 employees) who currently are subject to a Mandatory Electronic Payment surcharge.

HMRC are advising employers to let them know if they are likely to have difficulty making a payment on time, so that arrangements can be made and penalties can be avoided. Their guidance states that where employers enter into 'time to pay' arrangements, before the liability becomes due, no penalty will be charged. Penalties for late payment start at 1% increasing to 4% depending on the number of late payments in the year. Extra penalties will be added where liabilities our outstanding for a further six and then 12 months.