Some related articles :
News, April 2, 2001
The Financial Services Authority regulates many kinds of
financial business, including pensions
Pensions are really terribly
important, especially at a time when the government is talking of reducing
dependancy on the State Pension. The problem is that for many people
choosing a private pension can be terribly confusing. Working Lunch
unravels the maze.
Even after you've chosen your pension you still have to choose an annuity and making the right choice can means thousands of pounds more in your pocket.
Although we say 'living off your
pension', what we actually mean is we live off our annuity. If
you have a private pension you contribute to your pension pot for years
and then when you get to retirement age, you take the pot and buy an
annuity. Your annuity pays you a regular amount of money each month until
problem is that the amount you get for the whole of your retirement is
dependent on the interest rate at the date of retirement. And that's not
been very good. Annuity rates have fallen recently from nearly 9% to about
the value of the state pension falling, private or occupational pensions
are increasingly important
the bad news, so what can you do about it. Well you can shop around for
best annuity rates. Just because you have your pension with one company,
doesn't mean you have to buy the annuity from them.
here is an example of just how much you can make, by taking some time over
the decision. The difference between one of the best and one of the worst
annuities at the moment (quoted by the Annuity Bureau) would mean this for
your bank balance:
a year for a man aged 60 (a 21% difference)
a year for a woman aged 60 (a 31% difference)
Annuity Bureau and Annuity Direct provide independent advice on annuities.
1995 you can opt for income draw-down which allows you to take money
directly from your pension pot instead of buying an annuity. Income
draw-down contracts (also known as a Flexible Pension or Pension Fund
Withdrawal) are offered by most pension companies for those with a fund of
at least £100,000.
allows you to defer the purchase of an annuity until age 75, while still
drawing a limited, but regular, income.
alternative approach is known as Staggered Retirement or Phased
Retirement. Many people who purchase a pension annuity do not take out any
form of built-in protection against inflation. Again you have to be
finished with it by the time you are 75 years old. But it enables you to
take part of your pension now and leave the rest until later.
are lots of restrictions which limit the amount you can take and there is
a danger that you will destroy your capital. It is worth considering, but
once you are 75 you have to go for a proper Annuity.
Income Drawdown Advisory Bureau is an independent specialist which will
advise on income drawdown, as well as phased retirement and annuities.
there are a few companies which offer "With-Profit Annuities".
This enables you to buy an annuity with a guaranteed minimum monthly
payout but then you get extra money if the fund in which the money is
invested performs well.
are only three major companies offering these policies at the moment and
you do want to take careful advice before buying any annuity. There is
some risks attached because if the fund does not perform well then you
won't earn as much money.
because even With-Profit funds have a guaranteed minimum, the risks are
limited. And this may be a way to help you combat the challenge of living
off low interest rates.
important changes have affected the pensions industry over the last few
years. Here we provide a summary of the ongoing overhaul in legislation
relating to pensions:
1994 the SIB (now the Financial Services Authority) acted to clean up the
pensions industry following claims that many people sold private pensions
would have been better off remaining in or joining an occupational scheme.
So the pensions industry was required to review all personal pensions sold
between 29/4/88 and 30/6/94.
first phase of the review concentrated on "priority" cases -
those who are at or near retirement and those who have died. The deadline
for most firms completing the priority cases was December 1998. The second
phase, for those who are more than 15 years away from retirement, has been
through the consultation process and those who may be affected should have
been contacted in the first three months of 1999.
May 1997 Treasury Minister Helen Liddell started "naming and
shaming" pension firms who were not tackling the review seriously
enough. Large fines have been levied on the most serious offenders -
though the Pru escaped being fined because it is regulated by the SIB and
not the PIA.
to forfeit personal pensions
face the prospect of having their personal pensions forfeited following a
High Court ruling in Dec 1996. The Landau case ruled that all payments
from bankrupts' personal pensions were assets to be used to pay creditors.
will now forfeit their entire pension for life. Insolvency practioners are
reviewing bankrupticies going back 10 years.
Pensions Act 1995
6th April 1997 the Occupational Pensions Regulatory Authority (Opra) is
responsible for ensuring that those who run occupational pensions schemes
meet their legal obligations under the Pensions Act.
is an Independent Complaints Adjudicator who can suspend or disqualify
trustees. Scheme auditors and actuaries will have to act as
whistle-blowers and tell Opra if they think something is wrong.
Pensions Ombudsman's role has been extended so he can look into disputes
between trustees and employers.
Pensions Act states that if money has been removed dishonestly from a
pension scheme the employer must make sure enough money is put back into
the scheme to pay future benefits.
the employer is insolvent and unable to restore the funds the pension
scheme will be able to claim compensation (up to 90% compensation). This
is administered by the Pensions Compensation Board which will apply a levy
on occupational schemes as required.
the Pensions Act scheme members have the right to choose at least one
third of the trustees - Member Nominated Trustees (MNT). Employers can opt
out but only if the members, having been given a formal opportunity to
object, are in agreement.
new minimum funding requirement aims to ensure there's enough money in
final salary schemes to pay pensions if a company goes bust.
must be valued every three years and, if the expert valuers say there
isn't enough money, employers have to increase their contributions to the
a pension scheme invests in the employer's company Trustees now have to
make sure that no more than 5% of the pension fund's assets are invested
in the employer's shares.
1 July 1996, as part of the Pensions Act 1995, in divorce cases a judge is
obliged to look at pensions. The judge will not be able split a pension,
but will earmark parts of a pension, parts of the death-in-service benefit
and parts of a lump sum payout for the ex-spouse.
clause on pension splitting has been written into the Family Law Bill,
expected to progress though parliament in the next year.
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