Coronavirus: Martin Lewis advises on pension savings
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Pension saving is often considered key to funding later life, with the State Pension increasingly viewed as a mere safety net. But many individuals are not convinced by pension saving, often finding the endeavour too complex, or difficult to understand. Now, the Department for Work and Pensions (DWP) has acknowledged this may be the situation facing thousands of Britons, and has vowed to help.
As part of new regulations announced this week, the Government will now require pension schemes to provide their members with two-page informative documents.
These documents will highlight, in the most simple terms, key information with regards to a forecast for retirement, and the size of a person’s workplace pensions pot.
The document will also be required to show Britons what actions they could take to give themselves more money at retirement.
A consultation is taking place today, which will outline the exact regulations which will come into place.
Initially, the regulations will focus on savings garnered from auto-enrolment, a process which has enabled many more Britons to save towards later life.
However, the Government has said the scheme will later be extended to provide simplicity across all forms of pension saving.
The minister for pensions, Guy Opperman, commented on the matter.
He said: “It’s clear the status quo is not working, with savers left puzzled by the complex, sprawling, jargon-filled statements commonly used by the pensions industry.
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“Simpler statements will set a new standard for how pension companies communicate with their members.
“With more people saving for their retirement than ever before thanks to the success of Automatic Enrolment, it’s vital they can understand what’s going on with their hard earned money and actively plan for their future.”
The consultation on these regulations commences today, but will extend until June 29, 2021.
Kay Ingram, Public Policy Director at national financial planning group LEBC, also provided perspective.
She said: “Simpler statement from next year, coupled with Pension Dashboard scheduled to be available from 2023, will help pension savers feel more confident in their retirement planning.
“However, our experience of advising members of pension schemes is that they need help and encouragement to increase their pension savings to the level required if they are to be confident about their future.
“A statement on its own is unlikely to be sufficient in addressing the savings gap between the auto enrolment contribution of eight percent of band earning and that needed to provide a moderate standard of living in retirement.
“Evidence shows that annual reviews – the financial equivalent of a medical check-up – help people feel more confident about their retirement and to be better off by age 65 by over £47,700, more than those who do not take advice.”
While Ms Ingram said many savers are likely to be aware they do not have enough for retirement, many are at a loss regarding how to receive the help they need to change this.
Workplace advice, she added, could provide the most appropriate solution to this problem.
Ms Ingram continued: “We would ask the Minister to go further and make employers, trade unions and the public aware of the tax-free allowance already available to provide workplace advice to pension scheme members.
“The Conservative Government legislated to allow employers to fund workplace advice on pensions and other benefits, with up to £500 per employee per year being a tax-free benefit in the hands of the employee, and an offsetable trading expense for the business.
“Those employers who use this allowance to facilitate workplace advice receive much more value from their auto enrolment contributions.
“LEBC welcomes the Government’s focus, but believes promoting workplace advice, which couples technology with access to a human adviser, is the best way for Government to address the advice and savings gap for future generations.”
Where this kind of advice is not funded by the employer, Ms Ingram concluded by highlighting, individuals may be able to use salary exchange.
This, she said, could cut the cost by between 32 to 47 percent, depending on a person’s income tax band.
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