UK - Government plans to cap pension pots at £1.4m will boost industry-wide schemes, PMI vice-president Penny Green predicts.
Single employer schemes will have to make complex checks and calculations based on each employee’s previous pension arrangements to ensure they do not breach the proposed Inland Revenue limit.
But employees in an industry-wide scheme are more likely to retain the same pension across several jobs, leaving administrators with less work.
Green – who is chief executive of the SAUL Trustee Company – said calculations to see if an employee had exceeded the limit would be complex because of the extra protection the Inland Revenue requires.
She explained that when an employee retired, schemes would need to provide details of how long that employee spent in the previous jobs, pay, contributions as well as the final salary level.
Momentum Financial Services pensions specialist Mark Stopard agreed that industries in which money purchase schemes were common would benefit from adopting an industry-wide approach, particularly where individual schemes were proving expensive.
He added that Momentum typically dealt with individuals who were members of three or four pension schemes – both money purchase and defined benefit.
*The Inland Revenue £1.4m lifetime limit is based on someone aged 60 getting a full two-thirds pension – i.e. £64,800 which is two-thirds of the current earnings cap.
However, Friends Provident points out the current best annuity rate (around £380 per £10,000 for a male aged 60 with indexation) would provide a pension of just over £53,000 and consequently it could be argued the limit is too low.
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