Ask the expert: pensions guidance
First published 15 September 2014 • Updated 08 August 2017
Carl Lamb, Managing Director at Almary Green, talks pensions, changes coming with the new guidance guarantee and answers some all-important pension’s questions.
Where will I get pension guidance?
I understand once the new pension rules come into force next April everyone will be entitled to get free advice about their pension options. Where will we need to go to get that advice?
There is a fundamental thing to note in the new proposals: the Government intends to ensure that everyone has access to free guidance – that won’t take the place of individual advice. What is being proposed is that guidance will be provided by publicly funded bodies such as the Pensions Advisory Service and the Money Advice Service. These bodies are certainly impartial but they won’t be able to advise individuals about what route will work best for them; my understanding is they will simply make sure you understand what options are available and what each option entails.
More detailed independent financial advice will continue to be available through Independent Financial Advisers, who will make recommendations to suit your individual circumstances and will implement your agreed course of action if required – but they will, of course, make a charge for their advice service.
How will the announcements affect me?
I have worked for the NHS for over 20 years and have built up quite a decent NHS Pension. I’ve read about the new pension options announced in the Budget but I’m not sure how this will affect me. Can you help?
The NHS Pension Scheme – along with other Public Sector and some private sector occupational pension schemes – is what is called a Defined Benefits scheme. This means that what you get when you retire is based on benefit entitlements you have built up according to your length of service and salary, rather than being based on money you and/or your employer has contributed to a pension investment pot.
The future of Defined Benefit schemes is still in consultation. The Chancellor is planning to ban transfers out of Public Sector pension schemes into Defined Contribution schemes to avoid a sudden rush of people leaving these schemes and may well ban transfers from all Defined Benefit schemes.
However, the new “trivial commutation” rules will apply to Defined Benefit schemes so if your benefit entitlement on retirement is valued at £30,000 or less, you will be allowed to take it all as a lump sum. You must remember that if you have any other pension arrangements such as a private pension, this will count towards the £30,000 limit.
The final point to make is that, in the main, Public Sector pension schemes do offer a valuable retirement income rate – much higher than you would get if purchasing an annuity, for example. It’s therefore likely that many workers in the Public Sector would still be better off in their Defined Benefits scheme.
How much will my pension be?
Using today’s rates I understand that beginning in April 2016 new pensioners on or after this date will receive a basic weekly rate of £152. This will be based on 35 years NI contributions. Existing pensioners such as myself will receive £113.10p for a full 44 years NI contributions – it could be that my neighbour in 2016 will have a 34pc greater weekly old age pension than me for nine years less contributions. Is that right? Do you think that’s fair? I don’t!
Your figures are correct – from April 2016 new pensioners will indeed get a higher basic State Pension rate than you. However, the Government has recognised the potential inequality of this and is offering a means for existing pensioners to top up their pension – but it will involve a cash payment from you. The top-up takes the form of a one-off additional National Insurance payment and you can “buy” up to an additional £25 per week. The cost to you will depend on your age when you apply for the top-up and how much extra pension you are to get. The Government information website (www.gov.uk) gives an example of someone aged 68 in October 2015 looking for an extra £5 of additional pension per week. In this instance, the cost of the additional pension is £827.
Many pensioners may be unable to afford a top-up, or may decide that it doesn’t offer value for money. However, it is worth bearing in mind that the resultant additional pension will give protection from inflation and is secure (i.e. isn’t subject to market conditions). What’s more, it will provide a pension of at least 50% of the additional pension you receive for your spouse (if you have one) on your death.
If you do decide to apply for a top-up, the scheme opens for applications in October 2015 and is expected to run for 18 months.
About the author
Carl Lamb Founder and Managing Director of Almary Green Investments Ltd, Carl is passionate about delivering a quality service to clients.
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