There are a number of profound changes to the pensions landscape that will be taking place in the course of the next three years and whilst many of us will lose focus of these changes due to the impact of major events in the interim, a General Election, the Olympics in London, and the World Cup in South Africa to name but three, it is extremely important to be aware of how these changes may affect you.
Overlaying all of these changes is the fundamental change in how financial services advice is dispensed. In late 2008 the Financial Services Authority(FSA) announced that it would implement the findings of the Retail Distribution Review(RDR) and that this would be done in stages prior to a final implementation by 31 December 2012.
Three major changes result from the impact of RDR and these concern, Capital Adequacy, Qualifications, and the need for any advisor who wishes to remain independent to move to Fee Based Advice.
Capital Adequacy will involve all financial intermediary firms holding more capital reserves for any financial contingencies that may arise.
Enhanced Qualifications results from a desire from the FSA to see standards improve amongst financial advisors. At the moment the basic Financial Planning Certificate is all that is required to offer advice in most areas of financial services products. The FSA have stated that in June 2010 they will make an announcement of what qualifications they deem necessary moving forward under RDR. The industry is of the belief that it will be Level 4 Diploma that will be the new benchmark. This is not yet accepted by the FSA who have stated that they wish advisors to be qualified in the area in which they are called upon to give advice.
Fee Based Advice means that from 2012 any advisor who wishes to remain independent can only derive their income on a fee basis from that point onwards. This will result in a split in the advisor community, with some choosing to become independent professional individuals and many choosing instead to become salesman of products being limited to a small number of products, or a small number of suppliers.
The way in which State Benefits are accrued will change dramatically. The qualification period for the State Old Age Pension will reduce to 30 years from 2010; at the moment 90% of the working cycle for a man, being from age 16 to age 65, i.e. 44 years is required; and for a females 90% of the working cycle, being from age 16 to age 60, i.e. 39 years is required.
In future it will be possible to accrue State Old Age Pension benefit with evidence of one year of National Insurance payments. Previously a minimum of 10 years was necessary.
From 6 April 2010 a females age qualification for the State Old Aged Pension will gradually be increased from its current 60 years to 65 years, so by 6 April 2020 all females will receive the State Old Age Pension from their 65th birthday. This will be done by simply increasing the qualification age for every month that a females attains their sixtieth birthday past 6 April 2010. i.e. a female born on
6 April 1952 who reaches sixty years on 6 April 2012 will instead receive her State Old Aged Pension on 6 April 2014, on her 62nd birthday.
Any individual born after 6 April 1959 will be affected by the delay in qualification for the State Old Age Pension to 68 years. This delay is being phased in at the rate of one months delay for every month that an individuals date of birth falls after 6 April 1959, so for individuals whose date of birth falls after 6 April 1960 they will receive their State Old Age Pension at 66 years. For individuals born between 6 April 1960 and 5 April 1968 they will receive their State Old Age Pension at 66 years. For individuals born after 6 April 1968, again there will be a delay in the payment of their State Old Age Pension such that for every month their date of birth falls past this date there will be a delay of one month in payment of the State Old Age Pension. Any individual born between 6 April 1969 and 5 April 1977 will receive their State Old Age Pension at 67 years. For individuals born after 6 April 1977, again there will be a delay in payment of their State Old Age Pension such that for every month their date of birth falls past this date there will be a delay of one month in payment of the State Old Age Pension. Any individual born after 6 April 1978 will receive their State Old Age Pension at 68 years.
Furthermore legislation has already been passed to restore the link between the increase in the State Old Age Pension and any increase in the National Average Earnings Increase whereas currently any increase in the State Old Age Pension is made from the commencement of any fiscal year, based upon any increase in the Retail Prices Index in the previous September. No actual date has been given for this change although it is stated to be before the expiry of the next parliamentary term, i.e. 2015.
The Conservative Party, at their annual conference, have announced that they will increase the State Old Age Pension qualification age to 66 years for males from 6 April 2016.
There are changes also being made to the State Second Tier Pension(S2P). Although an exact date has yet to be confirmed legislation has been passed to prevent the ability for individuals to ‘contract out’ of S2P. This is likely to be implemented from 6 April 2012. It is also likely that Occupational Pension Schemes will also be unable to ‘contract out’ their membership but this is unlikely to be implemented until 2012/2013 with some style of scheme(defined contribution) and not until 2030 with other types of scheme(defined Benefit). In addition with the implementation of the Upper Accrual Point(UAP) within Band Earnings S2P will serve to cap the benefits available from S2P. A move to a flat rate for all participants is also likely but this is not likely to be implemented until 2031/2032.
Legislation has been passed to introduce Personal Accounts in 2012 which is a statutory lead pension scheme over and above the current State Benefits that are provided. Individuals will be auto enrolled in the scheme if they are over the age of 22 and do not opt out. It is proposed that the funding levels for Personal Accounts are being phased in from 2012 until 2016, when they will reach 4% employee contribution; 3% employer contributions; and 1% tax relief. The contribution rate will be set against Band Earnings, which were originally designed to be £5,035 to £33,540, with a maximum contribution level of £3,600.
The Conservative Party have already registered their anger at certain aspects of the introduction of Personal Accounts and are threatening to replace it before it is even introduced!
In addition to this the higher rate of income tax will increase to 50% from 6 April 2011, and there will be an increase in the rate of National Insurance by 0.5% from 6 April 2010.
Finally, and with effect from 6 April 2011, tax relief upon any pension investment will be restricted to basic rate of income tax for any individual earning in excess of £180,000. For the fiscal years 2009/2010 and 2010/2011, there will be a Special Annual Allowance in place of £20,000, but which could be increased to £30,000 in certain circumstances, for any individual who is deriving an income of £150,000, or more, and who may have derived such an income in either of the previous two fiscal years. The introduction of the Special Annual Allowance is designed to taper tax relief down to basic rate for those individuals earning in excess of £150,000, and up to £180,000. | 
