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Government examines the problem of pensions
The Department for Work and Pensions (DWP) is looking into improving annuity rates for individuals with pensions worth less than £5,000.
Currently, thousands of people with smaller pension pots are facing difficulties when they retire, as many insurance companies do not offer annuities for less than £5,000. Those that do quote on smaller sums tend to offer particularly poor rates.
While the trivial commutation rules should enable such individuals to take the money as a cash lump sum – 25 percent of which is tax free – those who also have an occupational pension which takes their total over the £18,000 limit can find that their money is trapped.
This has proved a problem since the triviality rules were changed in 2006, so that personal and occupational pensions are no longer considered separately.
Meanwhile, DWP is looking into how the forthcoming automatic enrolment of employees will impact on the administration of smaller pension pots and how individuals can be helped to maximise their savings.
While the minimum contribution level to such a scheme will be 8 percent by October 2017, the Association of Consulting Actuaries (ACA) has said this should double to 15 percent in order to provide for a comfortable retirement.
This will make uncomfortable reading for the majority of small businesses, as their pension schemes currently attract combined contributions of less than 8 percent. Indeed, two-thirds of small businesses do not provide a pension scheme for employees at all – mostly for cost reasons – despite employing 60 percent of the UK’s private sector workforce.
