Pensions Act Changes in 2015 A large proportion of the working public still don’t concern themselves with thoughts of pension schemes, and more broadly, how they plan to support themselves during retirement. But with more government cuts seemingly forever looming, and the recent, more positive, changes to the way in which Britain’s pension schemes work, significantly more people are beginning to acquaint themselves with the available options much earlier in life. But what are these most recent positive changes? And how do they benefit both workers and employers? These are the questions this article seeks to answer.
The Pensions Act 2015 was put in place to achieve four main things:
- To make necessary changes to legislation sponsored by the Department for Work and Pensions.
- To assist the pension tax freedoms introduced in the Taxation of Pensions Act 2014.
- To create a regulatory space for schemes that share risk between members and other parties.
- To enable new schemes to be set up that share risk between members.
The first of these changes is already complete, with the rest set to be finalised by April 2016, aiming to encourage and enable ‘shared risk’ pension schemes and ‘collective benefits’ in this time. The Act intends to benefit both employer and employee by saving the former money, when compared with the Traditional Final Salary Scheme, and empowering the latter to take more interest in their personal pension funds.
The Pensions Act 2015 offers three schemes:
- Defined Benefit This scheme offers the benefit of knowing what your final income from your pension will be as you save towards your pension.
- Shared Risk These schemes offer the benefit of knowing some of the final income from your scheme, but not the total income you will receive. Shared risk offers slightly less security than the Defined Benefit scheme but more than a Defined Contribution scheme.
- Defined Contribution This scheme does not offer the benefit of knowing what your final income will be from your pension as you save towards it, but does offer added flexibilities.
The Act also contains methods which allow workplace and personal pension schemes to yield ‘collective benefits’ – through schemes which are run so as to share the risks amongst their members. Assets are pooled; meaning that when one member of the ‘collective benefits scheme’ retires, they will receive an income from the shared assets of the scheme to support said retirement.
There are also even more additional flexibilities for those of us choosing to take out a ‘Defined Contributions’ scheme – which goes some way to combatting the slightly higher risk intrinsic to this choice. Subject to their marginal rate of income tax those using this scheme, who are over the age of 55, will have the ability to access their pension flexibly.
This scheme also offers a ‘Guidance Guarantee’; to ensure that anyone signing up understands the scheme and it’s risks and safeguards are in place for those who want to transfer from ‘Defined Benefit’ to ‘Defined Contribution’ in order to gain these flexibilities.
The options might seem confusing, but it is well worth taking the time to understand both them, and your personal needs, before deciding upon the one for you.
To find out more about the impact these changes are having on our society take a look at the governments Impact Assessments for The Pensions Act 2015.