Pensions have become more attractive as a shield against tax following the raise in capital gains tax (CGT) for high income earners according to Credencis.

Recession-weary parents are warning their children not to pin all their financial hopes on property and to look to pensions as well according to Aviva.

Most companies have already closed the costly schemes to new members and today’s figures suggested 94 per cent plan to either close them altogether or reduce benefits that existing members can accrue.

Many companies are switching to cheaper defined contribution schemes, which rely on the performance of the stock market instead.

The number of companies that have closed their defined benefit pension schemes to existing members has more than doubled during the past year, from 14 per cent to 32 per cent, and a further 30 per cent of employers intend to close their schemes to existing staff, according to the survey of almost 180 companies, carried out by accountants PricewaterhouseCoopers.

Just 6 per cent of companies said they intended to maintain their defined benefit pension in its current form.

Marc Hommel, pension’s partner at PricewaterhouseCoopers, said: “Employers are sounding a repetitive death knell for defined benefit pensions.

“Numerous factors, including the size and volatility of funding costs, and also concerns about the inequality of pensions provision within an employer’s workforce, are accelerating their demise.”

Companies are actively encouraging former employees to transfer their pension liabilities elsewhere.

Just over half of companies said they planned to offer enhanced transfer values to workers who had money in their defined benefit pension scheme who had since left the company, up from just 8 per cent who did so last year.

The survey also found that 87 per cent of companies think their staff are not saving enough for retirement and 60 per cent think people will not be able to retire when they want to due to insufficient savings.

Seven out of 10 also think plans to reduce the amount of pensions tax relief high earners receive will lead to lower pension provision for all people.

For bespoke pension advice contact Credencis.

We are situated neat to Derby, Leicester, and Nottingham.

Credencis

“Live for today, Invest for tomorrow”

Research carried out by Santander Mortgages appeared to show buying is cheaper than renting in every area in the UK except London.

According to the bank’s research, would-be buyers currently renting outside of London could save themselves an average of £1,040 a year if they were able to own their own property.

The average monthly rent in the UK, excluding London, is currently just over £420 compared to monthly repayments of £334 for the average first-time buyer – an average saving for homeowners of £86 a month.

Only those in the capital will be better off if they continue renting. Despite rental prices in London being roughly 56 per cent higher than the average across the UK, at £701 a month, exceptionally high house prices mean it would, on average, cost potential first-time buyers an additional £359 a month to buy.

Phil Cliff, director of mortgage marketing at Santander UK said: “The now average loan to value of 75 per cent for first-time-buyers has provided an obstacle in some cases but saving for a deposit is clearly a wise move. Lenders are also looking to offer higher LTV products while the government’s announcement that it will help boost the number of new homes is all positive news for those wishing to take their first steps on the property ladder.”

For free independent mortgage advice contact Big Mortgages.

We are situated near to Derby, Leicester, and Nottingham.

Big Mortgages

Many of the recent changes to the tax system have been concerned with personal pensions, and the level of public sector pension commitment is a thorny election issue. But with next year’s 1% hike in National Insurance rates looming ever nearer, what exactly do we get for our money in terms of additional state pensions?

SERPS and S2P

Of course, if you are as old as me you will remember SERPS, the State Earnings Related Pension Scheme. Provided you were ‘contracted in’ to the scheme, you built up an entitlement for additional State Pension payments from the government.

However, this scheme was deemed to be in need of reform. In April 2002, SERPS was replaced with the new State Second Pension, usually shortened to S2P.

If you are ‘contracted out’ of S2P, a rebate is paid into a separate pension scheme for your benefit (the same thing happened with SERPS). By contracting out in this fashion, you are effectively betting that your rebates would grow over time and provide a larger annual payment than you would have received had you stayed in S2P.

In practice, working out whether this will actually be the case is horrendously complex and many people have been advised that they would be better off contracting back in to the additional State Pension as a ‘safer’ option.

All change in 2012

From 6 April 2012 though, many people will no longer have this choice. From this date, you will no longer be able to contract out of S2P using a personal/stakeholder pension or a company pension or occupational pension scheme which is contracted out on a ‘money purchase’ or ‘defined contribution’ basis. Instead, you’ll be contracted back in and you will build up an entitlement to the additional State Pension instead.

The government justified this change by emphasising just how complicated it was to work out whether it was worth contracting out. You can’t argue with that. However, in reforming the S2P system, they have also shifted its focus in favour of lower earners at the expense of the better off.

So how exactly does the new scheme work, and what proportion of your hard-earned and grudgingly paid National Insurance contributions actually go towards your own future benefits?

The new S2P system

Between the lower earnings limit of £5,044 a year and £14,100, entitlement accrues at 40% of earnings. However, provided you earn at least £5,044, your S2P entitlement will be based on £14,100 rather than your actual earnings. This is known as Band 1.

In 2012, Band 1 income will earn you a flat rate of £1.60 in additional State Pension instead (which is much the same result as using the current calculation method).

Between £14,100 and the upper accruals point of £40,040, entitlement to the additional State Pension accrues at the less generous rate of 10% of earnings. This is known as Band 2. It is intended that this upper accruals point will be frozen in cash terms, so this 10% entitlement would become eroded by inflation over time.

In 2030/31 this 10% rate will be abolished and there will then be a flat rate across all income amounts up to the upper accrual point. So everyone who qualifies for the additional State Pension will then earn the same amount each year.

Great news for lower earners

One point to note is that S2P entitlement kicks in before any actual National Insurance contribution are payable at the primary threshold of £5,715. This means that if you just so happen to earn, say, £5,600, you would pay no National Insurance, but would earn entitlement to S2P.

Even better, this entitlement would accrue not at that very low salary level, but at the £14,100 assumed income as mentioned above.

David Heaton, Employment Tax Specialist at Baker Tilly illustrates the unusual effect this can have by way of an example. If a taxpayer earns £7,000, he will pay National Insurance of £141 (being £7,000 less the primary threshold of £5,715 at 11%). However, his S2P will be calculated on the maximum £14,100 less the lower earnings limit of £5,044, namely £3,622. This could translate to an annual S2P of £105 in exchange for an annual contribution of just £141.

It seems highly likely that this system will be tinkered with again before 2030/31. But there’s a clear message being sent — if you want a decent income in retirement, then you’ll have to provide it yourself.

For pension advice contact Credencis.

We are situated near to Derby, Leicester, and Nottingham.

Credencis

“Live for today, Invest for tomorrow”

New retirees are being hit by the lowest pension payouts ever recorded, leaving them with scant returns on their hard-earned nest eggs. Sharply falling annuity rates have plunged to their lowest level in more than two decades, with rates for a couple in their 60s sinking below 6%.

This means that retirees taking their pensions today are being forced to accept a smaller income than someone buying an annuity with the same pot just a few months ago.

And the bad news for those approaching retirement is that the situation doesn’t look like improving in the near future.

Back at the beginning of April, a man aged 65 with a wife aged 60 buying an joint annuity with a £100,000 pension pot would have received £6,080 a year.

Today, he would get £5,860. It means rates have fallen by 3.6% in two months.

Essentially a type of insurance product, an annuity provides a regular income for the rest of your life. As it stands, anyone with a pension is required to buy one by the age of 75.

But this could change under the new Lib-Con government, with its coalition agreement promising to ‘end the rules requiring compulsory annuitisation at 75′.

Yet for the estimated 250,000 people who will buy an annuity this year, the proposals will offer scant consolation: all the major annuity providers have cut their rates within the last month.

The list of those slashing rates includes Canada Life, Prudential, Aegon, Legal & General and Standard Life.

The downward pressure on annuity rates has come, in the main, from a slump in gilt yields. This is because insurers primarily invest annuity money in gilts, then pay customers using the income from the yield.

With gilt yields still volatile, the outlook for annuities remains gloomy.

The reasons for falling yields is a complex mixture of concerns about debt problems in the Eurozone economies, a flight from equities to gilts and as investors shun the stock market and the likelihood that central banks will keep interest rates lower for longer.

Looking at historic annuity charts, rates are only heading in one direction – south. Even if bond rates do go up, Credencis feel annuities won’t rise nearly as much.

Worse still Credencis say pensioners are still losing hundreds of pounds each year because they are not shopping around for their annuity.

Graph: How annuity rates have declined over the last two decades

Source: This is Money

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This shopping around is called using the Open Market Option (OMO). Everyone with retirement savings is entitled to find a better annuity provider when they take their pension. Yet, despite the attempts of many insurers, many seem unaware of the potential to better their income.

In 2009, 290,000 retiring investors, 63% of the total number, bought an annuity from their pension provider, according to research by Hargreaves Lansdown. At least 175,000 of those policies were big enough to get a competitive annuity quotation (a value of £5,000 or above).

‘Shopping around for an annuity at retirement is a simple step that could increase pensioner incomes by hundreds of pounds a year without costing the Treasury a penny,’ Brian Flindall from Credencis says.

‘Doing this could boost your income by 20% – possibly more if you have a medical condition that allows you to buy an enhanced annuity.

This,  is part of the ‘good news’ that could just about help the savvy saver mitigate the declines.

If fund values were going up faster than annuities were falling, then we wouldn’t have so much of a problem. But they’re not. Rates are heading south and they are unlikely to rise. It means investors are being hit by a pensions double-whammy.

The good news is that if you take advice and are confident enough to take on some risk, you can counter these effects.

‘With annuities, you’re taking a long-term decision, so you need to assess all the alternatives. If you have a pot of £50,000 or more, you should seriously consider splitting between fixed and investment-linked annuities to provide a better income throughout retirement, says Brian Flindall of Credencis.

Credencis says another strategy potential for beating low rates could be hedging your income by buying some using some of your pot to buy an annuity now, and some at a later date. However, they warn that there is nothing to say rates won’t continue to fall, leaving you out of pocket, because annuity rate movements are ‘always extremely difficult to predict’.

For bespoke annuity advice contact Credencis.

We are situated near to Derby, Leicester, and Nottingham.

Credencis

“Live for today, Invest for tomorrow”

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However, employer contributions increased from £7.42bn to £7.71bn over the same period.

A collapse in pension saving of this magnitude will inevitably have repercussions further down the line unless savers make good their missed contributions.

The new government could do its bit by introducing greater flexibility in how and when you can draw on your pension. As things stand individuals are understandably reluctant to put money away for their retirement when their immediate future looks uncertain.

Faced with uncertainty over future earnings it is understandable that some chose not to save into a pension in case they needed money in a hurry. Allowing early access to pension funds would have nullified this concern.

Workers would have been able to continue their normal retirement savings safe in the knowledge that if they fell on hard times, their pension savings would be available to them.

The Liberal Democrats pledged in their manifesto to allow early access to pension funds; the Conservatives have also spoken in favour of such an arrangement.  Hopefully this policy will find its way into the new government’s legislative agenda.

HOW MUCH DO YOU NEED TO SAVE?

Monthly contribution required to acquire £10,000 of pension income. The income calculation is based on a man aged 65 buying a level annuity. Assume 6pc growth after charges and 2.5pc inflation.

Credencis offer bespoke pension advice to help you achieve your retirement goals.

We are situated near to Derby, Leicester, and Nottingham.

Credencis

“Live for today, Invest for tomorrow”

HM Revenue & Customs has confirmed clients aged between 50 and 54 with crystallised benefits are unable to transfer to a new scheme or annuitise without facing unauthorised payment charges.