These ‘pension reciprocation plans’ claimed to be able to offer access to 50% of the value of pension funds, even to those younger than the minimum benefit age of 55.

The High Court subsequently ruled that such schemes are illegal.

Earlier this week we saw an example of an equally dangerous pension scheme, which has today been reported on the front page of Money Marketing.

The scheme offers commission rates of 16% to the pension investor in return for introducing themselves to the promoter of the scheme.

Commenting in Money Marketing today, Informed Choice chartered financial planner Martin Bamford said:

“This is a terrible deal for the customer and could be in breach of HMRC rules on pension commencement lump sums. The commission paid to the customer could be considered an unauthorised payment and the pension fund could suffer significant tax penalties as a result.”

Pensions are designed to provide an income in retirement and have strict rules regarding the shape of benefits as a result.

Tax-free cash from pensions (more properly known as a pension commencement lump sum) is limited to 25% of the value of the pension in most cases, and only payable from age 55 onwards.

The level of ‘commission’ on offer from this particular scheme makes us suspect that it involves an investment in unregulated UCIS investment funds, which are typically high risk illiquid schemes in esoteric assets.

UCIS investments can only be legally promoted to high net worth or sophisticated investors in the UK.

We hope that the HMRC and FSA take fast and decisive action to shut down this scheme and any others that emerge following this model.

The risks to investors in terms of potential tax penalties, scheme charges and investment unsuitability appear to be substantial.

Photo credit: Flickr/Leo Reynolds

This has fallen sharply from the over 50% of men who were contributing to pensions in 1999/2000. This is compared to only 39% today.

The current contribution levels represent the lowest level of pension participation in the last decade.

It is a worrying set of figures.

With life expectancy continually improving, saving for a financially secure retirement is becoming increasingly important.

The major decline in private sector defined benefit pension schemes suggests that more people should be making greater private provision for retirement.

Commenting today for Morningstar, Informed Choice chartered financial planner Martin Bamford said there could be several reasons for this declining popularity in pensions:

“With personal, private pensions, it takes a great deal of planning and motivation to open a pension plan,” he says.

“It’s difficult to know what to do, where to go, where to invest and how much to contribute. This prevents people from taking action.”

Making private pension contribution is unfortunately not as simple as it could be.

A good starting point is to understand where you are today and where you want to be in retirement. These are the two figures required before you can calculate how much you will need to contribute during your working life to create a large enough pension fund.

Seeking advice from an independent financial adviser can help you to answer these important questions.

Photo credit: Flickr/artisrams

The legal publisher Sweet & Maxwell is reporting an 11% increase in the number of pension sharing orders in 2010, the latest year for which data is available.

They say that more than one in ten financial settlements ordered by courts include an arrangement to share pension benefits.

This is likely to be in response to the falling value of other assets, including property, as a result of the economic downturn.

There were 82,290 ancillary relief cases in 2010, up 3% on the previous year. 10,205 of these cases involved pension sharing orders which was 9,218 more than in 2009.

Pensions, which have historically represented the second largest family asset, are now in some cases becoming the most valuable asset that needs to be divided on divorce.

A pension sharing order has been an option available to divorcing couples since 1st December 2000, when they were introduced by the Welfare Reform and Pensions Act 1999. Until the availability of pension sharing, the only options for pensions on divorce were earmarking and offsetting.

With pension sharing becoming a more important part of divorce settlements, it is vital that lawyers engage early with a competent independent financial adviser to ensure a fair and suitable distribution of pension assets is achieved.

All too often we are called in to divorce cases once pension sharing orders have been finalised, at a stage in the process where little if anything can be done to assist with suitable agreements.

Photo credit: Flickr/jcoterhals

Pension benefits in excess of this new lower lifetime allowance will be subject to a recovery charge.

Whilst £1.5m is a lot of money, it is estimated that around 100,000 members of public sector pension schemes could be caught out when the lifetime allowance is reduced.

This is because a formula of twenty times the annual pension income is used to test pension benefits against the lifetime allowance.

It means that anyone who starts receiving a pension income over £75,000 a year from 6th April 2012 will be subject to a 55% recovery tax charge, unless they implement a form of protection ahead of this change.

Fixed protection is an option available to those with large pension funds or significant pension benefits.

This needs to be registered ahead of 5th April and one implication of fixed protection, which gives the pension scheme member a lifetime allowance of £1.8m rather than £1.5m, is that you need to opt-out of your defined benefit pension scheme.

To understand whether you are better suffering the recovery tax charge or leaving your final salary pension scheme requires a reasonable level of data gathering and analysis.

Based on the typical length of time it can take for a pension scheme to provide the necessary data for this type of advice, anyone who needs to consider whether they should register for fixed protection should be doing so within the next week.

Even with this timescale, we expect certain public sector pension schemes to struggle to provide information in time for us to provide our analysis and advice ahead of the end of the tax year.

Photo credit: Flickr/focal1x

Within this 30 minute webcast, Nick described the main things you need to consider if you are retiring in 2012 and have to make decisions about your pension benefits.

The webcast covered decisions about tax-free cash, considerations when choosing a conventional annuity, and the alternatives to annuity purchase including unsecured pensions.

With falling stock markets and low gilt yields, making decisions about retirement income options in 2012 will be more challenging than ever before.

There is a wide range of choice for people reaching retirement and converting their hard-earned pension funds into an income for life; making these often lasting decisions requires careful consideration.

You can watch a recording of this free webcast here.

Until now, investors who took tax free cash and income in stages from their pension plans would have a different review date for each tranche.

This meant an investor could have numerous reviews each year, incurring additional costs and complicating the administration and income calculations.

This month HMRC confirmed it will update guidelines to allow investors to align their pension tranches by both shortening and lengthening years.

This move will provide greater flexibility and enable income drawdown plans to be simplified, reducing both costs and administration.

We are still hoping to see some additional flexibility with regards to income levels from unsecured pensions.

The recent reduction from 120% to 100% of the equivalent annuity level, along with falling gilt yields driving down GAD rates, has resulted in many income drawdown investors having much lower levels of income.

We will be keeping a close eye on the Budget on 21st March to see if any additional changes are made to these rules.

Edit: Thank you to Gareth James from the SIPP provider AJ Bell who has been in touch with some additional information.

The merging of pension years, as described in our blog above, is only available once an individual using income drawdown reaches age 75. What is described in this blog is a change to HMRC guidance, rather than the rules, as a result of Gareth lobbying HMRC for clarification.

Gareth points out that care needs to be taken when lengthening a pension year to align review dates, as the maximum available income would need to be spread over a longer period of time e.g. 20 months rather than 12 months.

The oil giant will offer new employees membership of a money purchase pension from the start of 2013.

This move will place the risk of providing a pension income in retirement onto individual members of staff.

With a final salary (defined benefits) pension scheme, the employer must manage the risks of providing a pension promise. This promise has become increasingly expensive as investment returns diminished and we all keep living for longer.

Some recent numbers from the Association of Consulting Actuaries showed that around 90% of final salary schemes in the private sector have now closed to new entrants.

Is this the end of final salary pensions?

The future for pension provision now looks like it will be the responsibility of individual employees to manage.

Trying to match the level and shape of benefits provided by a typical final salary pension is an expensive exercise.

Increased personal responsibility will mean balancing financial priorities during a working lifetime, to ensure sufficient assets are accumulated to fund a lifestyle in retirement.

Robust financial planning will be required to keep retirement income plans on track.

This means regularly reviewing projected levels of retirement income and taking an active interest in how pension funds are invested.

Pensions remain a complex area of financial planning for many people. The need for professional advice to get the most out of new pension offers from employers is essential.

Photo credit: Flickr/Gerard Stolk vers la Chandeleur

According to Treasury Minister Danny Alexander, an outline agreement on the required changes to public sector pension schemes has been reached in principle.

They claim that the proposals that have been agreed deliver the required cost savings in full.

It appears that a concession has been made which will see more generous accrual rates applied to future pension benefits.

As was previously proposed, future pension benefits in the public sector will be based on career average earnings, rather than the current final salary basis. This means that in many cases those in the public sector will need to work for longer to accumulate the same level of pension benefits.

Higher pension contributions for members will still come into force from next year.

The pension age applied to future accruals, once the new rules are introduced, will increase in line with the state pension age.

With people living longer, changes to the still generous public sector pension schemes was inevitable.

It will be interesting to see the response from union members to these revised proposals.

From what we have seen of the different terms that will be applied to each scheme, we expect to see a reasonable level of confusion as the proposals are digested.

Photo credit: Flickr/o5com

This followed the receipt of several emails from firms offering early access to pension funds.

These ‘pension reciprocation plans’ claimed to be able to offer access to 50% of the value of pension funds, even to those younger than the minimum benefit age of 55.

We were immediately suspicious about these schemes and sounded a warning in our blog. The Financial Services Authority (FSA) later provided a similar warning to consumers not to get involved.

The Pensions Regulator subsequently appointed an independent trustee to seize control of the bank accounts of six schemes used for these pension reciprocation plans.

Today we have seen a High Court ruling confirming that such arrangements are illegal.

We understand that around 400 pension scheme members got involved with these illegal pension reciprocation plans.

It will be interesting to see how this all unravels following the High Court ruling and whether any financial advisers were foolish enough to recommend these clearly dodgy arrangements to their clients.

Photo credit: Flickr/Eric The Fish (2011)

Around 23% of remaining final salary pension schemes closed the doors to future benefit accrual by existing members or membership by new staff.

This makes 2011 one of the busiest years for pension scheme closures in the private sector.

In 2008, only 3% of defined benefit schemes closed to members. This increased to 17% in 2010.

As a result of the scheme closures this year, around 250,000 people in the private sector have lost access to final salary pensions over the past three years.

Those schemes that do remain open are typically only available to existing scheme members. Only 19% of final salary pensions in the private sector continue to accept new employees as scheme members.

This compares with around 88% of private sector final salary schemes open to new members only eleven years ago.

Much of the focus about pension funds recently has been on the proposed changes to schemes in the public sector.

Whilst the public sector will retain defined benefit pensions, albeit on a career average earnings rather than final salary basis, those working in the private sector are increasingly having to make do with defined contribution (money purchase) pension schemes.

This shift away from defined benefits in the private sector reduces risk and funding costs for the employer, placing this on each individual member.

If your employer is closing their pension scheme, it is important to seek professional independent financial advice in order to understand the cost of replacing those benefits in a money purchase environment.

Photo credit: Flickr/Horia Varlan