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Greater freedom for pensions

The Daily Mail had run a vociferous campaign against 'annuity rip-offs', so it celebrated the Budget changes to pensions, saying: “Millions will get freedom to use retirement cash how THEY want”. The Chancellor said fundamental reforms would come in 2015 to give everyone the freedom to use their pension fund how they liked, so long as they paid tax on what they drew out once the 25% of fund tax free cash limit had been exceeded. In the meantime, he said people could take pension pots of up to £30,000 in cash rather than having to turn them into annuities, effective from March 27th.

Of course, compulsory annuity purchase has been dead for some time now but the new proposed rules will make drawing down the funds much more flexible than under the current rules. You can't get much more flexible than taking the entire fund in cash. Importantly there will be consultation to agree the detail of how all retirees will be given access to free, impartial face to face guidance guaranteed by the product providers.

Pensions aren’t just a hot Budget topic. They’re never far from the HR news at the moment. The process of auto-enrolment is continuing and one of an employer’s key duties is to ensure that the pension scheme offered meets the qualifying criteria.

You must select a pension scheme which meets certain legal requirements. These include, for example, that the scheme does not require the worker's consent to join, it allows workers to join from their first day of employment, it is tax registered in the UK and it allows for the minimum legal contributions from employers and workers. The scheme must be good quality, well run, offer value for money and protect your workers’ retirement savings.

If you already have a good quality scheme which offers value for money to members, you may decide to use it as your automatic enrolment scheme. However, where a scheme is not in place for automatic enrolment, most employers are likely to choose a defined contribution (DC) scheme (also known as a ‘money purchase’ scheme),such as a master trust or group personal pension for automatic enrolment. In a DC scheme you and your workers make payments into the scheme over time to build up a retirement fund.

The amount that your worker gets at retirement will depend on:

  • how much has been paid into the scheme
  • how the chosen investments perform
  • the age at which they retire
  • the cost of turning those investments into a retirement income.

Master trusts and group personal pensions are usually designed to be used by many different employers and tend to be run by large specialist pension providers. Because of their size and the way they operate, they generally cost less and require less involvement from employers compared to other schemes.

The National Employment Savings Trust (NEST) is a master trust that has been set up by the Government to ensure that employers can access a pension scheme to help them comply with automatic enrolment. NEST has a public service obligation, which means it must accept all employers who wish to select it as their automatic enrolment scheme provider.

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Tudor Griffiths has 30 years’ experience, specialising in financial planning and employee benefits advice for SMEs. Tudor is Director of Zen Benefits Ltd which he set up in 2012 specifically to provide practical help and advice to the thousands of medium and smaller employers struggling with auto enrolment.

Zen Benefits Ltd offer smaller firms individual attention combined with technology solutions normally only available to much larger clients. Zen Benefits collaborates closely with accountants, solicitors, HR consultants and payroll bureau to ensure a comprehensive client solution.

Zen Benefits Ltd is an Independent Financial Adviser (IFA) and an appointed representative of Best Practice IFA Group Limited which is authorised and regulated by the Financial Conduct Authority.

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