Afternoon session
Workshop 4 – Debra Blow USDAW Hot Topics
(1) Pension freedoms and problems
Options at retirement for defined contribution pensions
100% cash - Cash withdrawals - 25% cash and drawdown - Annuity purchase
Problems
Taxasition issues
Transferring a defined benefit pension into a Defined contribution pension.
Exit penalties
Loss of guarantees
Reduced transfer value
(3) Short service refunds
The current options if you leave a pension scheme are –
Deferred pension or transfer into your next pension fund.
Refund of your contributions minus tax and employer contributions
Transfer into your next pension scheme
From October 2015 you can only get a refund of your paid pension contributions within 30 days of joining a pension scheme.
This is designed around the auto enrolment scheme where you need to opt out of the pension.
(4) Pot follows member
The average person will have 11 jobs in there lifetime.
This could result in lots of small frozen pension pots that are easy to lose track of, can lose value due to continuing charges each year and the pots are to small to buy a pension.
The DWP are proposing a new system where a person can take their pension pot from one employer to the next as long as the pot is no more than £10,000. This will make it easier to track pension pots and allow you to buy an income with your pot.
(5) Auto Enrolment
All companies have to re enrol all staff that are not in the pension scheme every 3 years. This still applies if a staff member was previously auto enrolled and they decided to opt out of the pension scheme. The company should write to these employees explaining this so they are aware and can re opt out should they wish to do so.
Small and medium sized companies are about to introduce auto enrolment.
Some employers have deferred this until 2017 / 2018.
Where employers have a pension scheme with the state minimum contributions these will be increased.
October 2012 – Sept 2017
Employee 1% employer 1% total 2%
October 2017 – Sept 2018 Employee 3% employer 2% total 5%
October 2018 – onwardsEmployee 5% employer 3% total 8%
(6) Cap on pension charges
From April 2015 a cap on pension scheme charges was introduced. This is 0.75%
(7) How can USDAW and Reps help?
Reps can hold Pension awareness days using the great range of leaflets that USDAW has produced on Pensions.
Reps can encourage members to complete the USDAW home study courses on Pensions.
Afternoon session continued
Catherine Lockyer First actuarial – TAX.
Catherine
spoke about how we all need a pension we all need to pay tax in different
amounts and in different ways.
Catherine
explained how workers are affected by tax, national insurance and pensions.
The
tax free allowance is £10,600 – no income tax up to that level
The
basic tax rate is £10,600 to £42,400 –
20% income tax rate
Anything
above £42,400 you will pay the 40% income tax rate
Earning
over £42,400 will pay 2%
Your
pay will be deducted of national insurance first and then it will be deducted
of income tax.
When
you are making contributions to a pension scheme its good to know where the tax
relief happens.
Some
pension schemes will take contributions before tax from your gross pay (net pay
scheme) others will take it from net pay (relief at source schemes).
There
is no difference to fulltime employees who pay income tax.
The
people who benefit are low paid workers who don’t pay income tax as the
government will pay the income tax into the pension fund only if your pension
scheme is a relief at source scheme.
Other
pension schemes will take your contributions from your net pay - which means
you have paid full income tax on all of your pay.
The
pension company will then claim the tax back from the government and add this
into your pension fund.
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