Tag Archive | "pension"

40% of Brits will Never Retire According to Survey

In a brand new survey by experts, it was found that 40% of British people in the workforce believed they will never get to retire.

This isn’t because they don’t want to of course. No…it’s because they won’t have enough money to retire, which means they will be have to keep on working well beyond the retirement age into their 70’s and even 80’s.

In my opinion it isn’t just employed people that should be thinking about this, contractors and the self employed in general must also be planning for their retirement.

As I’ve talked about before on this blog, there are many contractors who simply don’t save any money for retirement and don’t put anything into a pension, instead, hoping to rely on the State Pension to take care of them when they get to 65.

Well, some news for anybody expecting to do this. For one, the eligible age for a State Pension is going up soon, to 67 I think, although many experts predict it could be 70 in the near future. If you still have 30 years to go until you are around retirement age where will it be then? It might very well be 80! That is if there is any such thing as a State Pension by that time.

Not only that, but a basic State Pension doesn’t provide you with much money on a weekly basis, and with everything getting more expensive it really is nothing more than spending money for most people.

That is why I am always telling contractors, gig workers, freelance professionals…whoever…you must be putting some money away into a pension or some kind of savings. If you don’t then you probably won’t ever retire, just like the 40% of people asked in the survey.

Interestingly, there was differences of opinion in the survey depending on where you lived. For example workers in London didn’t have much optimism about retiring, with 45% saying they will always be clocking in, while only 32% of people in Scotland agreed.

Maybe North of the border they know something that people in the capital don’t know? Or perhaps they are just more educated when it comes to saving money and being smart about pensions? I think that is probably right.

There are some contractors who don’t ever want to retire though, and in actual fact they would call themselves already retired.

These are the people that work from their laptop, working a few hours that suit them but using most of their time taking breaks to do things they enjoy. A good lifestyle if you can get it, but for most Britons this isn’t a reality.

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How much can contractors put in their pension fund this year?

Contractors are no doubt aware that the government recently changed the rules on the amount of money people can put aside in a pension scheme and still benefit from tax relief. It used to be £225,000, but earlier this year chancellor Osborne reduced that to a mere £50,000 per year.

However, there are some complex transitional rules that allow contractors to carry forward unused allowances to the following year. HMRC recently relaxed these transitional rules for the years 2008-09, 2009-10 and 2010-11.

Take for example a self-employed web designer who has contributed £20,000, £40,000 and £30,000 to his pension over the past three financial years. This year, the web designer had a really good year and wants to increase the amount he pays into his pension pot. He has not used his entire annual allowance over the last three years and therefore he has £60,000 to carry forward, giving him a tax-free allowance of £110,000 this year.

Meanwhile, a lot of companies are still unprepared for the new pension regime that comes into force next year.

Research from the CIPD shows that 75% of companies know that changes are imminent, but only 32% actually know when they need to start applying them.

Pensions auto-enrolment will affect large organisations first and yet nearly a third of those companies do not know if their implementation date has been identified. A major problem seems to be that some HR departments have assumed that another department is dealing with the 2012 pension changes, while other departments think HR is taking the required action. A definite case of lack of communication!

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Are umbrella companies prepared for pensions auto-enrolment?

Last week, the REC responded to the inquiry into workplace pension automatic enrolment, highlighting the challenges the reforms will pose for recruitment agencies that place temporary workers.

Recruiters will be classed as employers under the new pensions legislation, even though they play a very different role in the labour market. The REC has reinforced the fact that the recruitment sector plays a unique role in providing employers with skilled temporary labour, but this will make it very complicated for recruiters to comply with the new rules.

The head of public policy at the REC, Gillian Econopouly, said the 12 week qualifying period will go some way towards helping recruiters cope but there are still other areas of concern. She highlighted the fact that the administrative burden of regular auto-enrolling and un-enrolling temporary workers will detract agencies from their core business which is to help employers find the talent they require.

She went on to say that the Confederation will continue to provide input to the government and the regulator of the scheme and confirmed that the REC will provide practical support to all of its members to ensure they can implement the required changes.

The REC will be holding another Pensions Workshop in the late autumn and it will keep its members informed on the findings of the current inquiry.

Meanwhile, the Pensions Advisory Service is starting to receive more enquiries about auto-enrolment as the date for implementation draws closer. Employees and employers alike have already begun contacting TPAS to discover more about their obligations once the legislation comes into force next year.

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Public sector workers reluctant to move to private sector

Recent research findings from Badenoch & Clark show that nearly 67% of public workers have decided to remain in their current position and 31% say they are happy in their current role. Yorkshire has the highest percentage of content employees at 44.7%.

The professional recruitment agency surveyed 1,000 public sector employees and found that almost 15% are attracted to public sector benefits such as pensions. A further 41% say their length of service makes them reluctant to leave, and this figure increased to 51% of public sector employees in the North East of England. 38.3% of public sector workers said making a difference was the prime motivator to remain in their role.

Nicola Linkleter, the MD of Badenoch & Clark, said these results show that a lot of public sector workers still have a sense of belonging despite the unprecedented changes that have affected the sector in recent months.

Employees who have been in the same role for some years are fearful of change, but the work/life balance that comes with working in the public sector and the sense of purpose they get from their employment encourages many to stay. Benefits, such as pensions, still rank highly but there are some even stronger drivers to retain staff within the sector.

It’s now up to public sector employers to support and nurture their staff throughout the period of change and acknowledge their expertise and commitment. Employers must reward top talent if they want to keep hold of their key employees and attract external talent in the future, she concluded.

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Should sole traders be exempt from certain legislation?

The British Chamber of Commerce recently called on the coalition to encourage sole traders to grow by making them exempt from certain legislation.

Employment legislation has been identified as one of the main obstacles to sole trader growth, according to research from the BCC. Sole traders are deterred from hiring staff or contracting umbrella company contractors because of dismissal rules, pension requirements and sickness absence.

The BCC pointed out that the number of sole traders has continued to grow in the past seven years and although not all 3.6 million of them want to expand, some do. The Chamber’s director of policy, Dr Adam Marshall, said that if the government wants to increase employment, it has to make changes to encourage sole traders to expand.

It’s not only sole traders who feel burdened down by the pressures of bureaucracy. Basepoint surveyed its licensees in the South and the Midlands recently and 42% said the government should be doing more to reduce the red tape that holds smaller firms back from expanding.

The decision to increase National Insurance has not been popular amongst small business owners and some respondents felt a 12 month NI holiday should be granted to small firms to encourage them to hire more staff.

The increase in holiday entitlement was also flagged as a deterrent, with one respondent saying that paying employees for being absent for six weeks was too expensive.

The executive director of Basepoint Centres, Brian Andrews, said the economy is still stuttering towards recovery and this is a crucial time for small firms. The government has to understand that small businesses will not be able to grow unless outdated and unnecessary red tape is removed.

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Public sector strike action could affect umbrella company contractors

Freelancers, contractors and small business owners may want to make preparations so that they are not affected by public sector strikes.

On the 30th June, various unions with public sector members are planning strike action to protest against government cutbacks, salary freezes and pension reforms. One of the largest unions involved in this action is the Public and Commercial Services Union, which has a membership of 250,000 civil servants.

The unions hope that the government and the TUC can reach agreement before the end of June; otherwise three quarters of a million public servants will be involved in industrial action. A strike on such a grand scale could have a disastrous effect on businesses. Previous strike action by HMRC staff has not amounted to much more than extended lunch breaks. This new action however is expected to be lengthier and therefore more disruptive.

It’s not only HMRC that will be affected. Teachers could walk out leading to school closures, and transport and services will also be affected.

Andrew Cave from the FSB has warned that strike action could be counter-productive if staff cannot get transport to work and firms are unable to make deliveries.

David Frost believes industrial action will have an impact on confidence and could deter much needed inward investment.

The business secretary, Vince Cable, has pleaded with the unions not to organise mass strike action over the coming months but the TUC dismisses concerns that the strike will impact businesses. According to the TUC, the biggest effect will be people not getting to work on time.

Nevertheless, work-at-home contractors will no doubt be glad that it will not affect their ability to work!

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REC plans pensions auto-enrolment workshop next month

As from October 2012, employers, including umbrella companies, will need to enrol their staff in a pensions scheme automatically.

Recruitment agencies will also have the same obligation after a temporary worker has been with them on assignment for 12 weeks.

In a bid to clear up some of the confusion surrounding the new rules, the REC and NEST will be hosting a free workshop for members of the REC on May 17th.

The REC’s head of policy, Gillian Econopouly, pointed out that the workshop will provide an excellent opportunity for members to understand auto-enrolment and make sure they can explain to candidates what the reforms mean.

She went on to say that the REC was delighted that the National Employment Savings Trust was participating in the event as a lot of agencies would be choosing the government backed pensions scheme as their provider of choice.

One of the major challenges that agencies face when the new legislation comes into force is that of worker churn. At any one time, about a million temps are working on assignments. However, the nature of the work means some temporary workers are constantly changing assignments, and in some cases, agencies.

The auto-enrolment qualifying period will help agencies cope, but it is thought that many temporary workers will want to opt-out after their agency has auto-enrolled them. The REC believes it will be a very time-consuming process for recruiters to be continually auto-enrolling and un-enrolling their workers. This bureaucracy will detract recruitment consultants from the day to day tasks of helping candidates to find opportunities, the REC has said in response to the Department of Works and Pensions consultation.

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Will the Finance Bill affect umbrella companies?

Tax experts have applauded the government’s grown up approach towards creating a more stable tax system.

By publishing a draft of the finance bill three months in advance of the changes, the Treasury has given experts and umbrella companies time to scrutinise the new legislation and make preparations for the new regulations.

Next year’s finance bill includes reforms to both the pensions framework and the corporate taxation system as well as a raft of complex measures to clamp down on tax avoidance.

As from next year, the individual annual pensions tax relief allowance will be reduced to £255,000 and the lifetime allowance will be set at £1.5 million as from 2012. The requirement to secure a pensions annuity by the age of 75 is also to be repealed but details of this move will not be released until February.

The government also intends to simplify the rules on corporate capital gains and lay down a clearer purpose-based rule to replace the existing tax avoidance rules.

People who let a furnished holiday property should be aware of new regulations that will affect them as from April 2012. Furnished holiday lettings will need to be available for 210 days per year instead of the current 140 days. And the property must be let for at least half of that time, i.e. 105 days as opposed to the current 70 day requirement. However, there will be a two-year grace period for property owners to comply with the 105 day rule.

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Finance Bill 2011 tackles disguised remuneration

Employee benefit trusts and employment finance retirement benefits schemes are the latest to be targeted in proposed Treasury regulations.

The Finance Bill 2011 contains a document concerning ‘disguised remuneration’ which aims to tackle the practice of using trusts and other means to defer, reduce or avoid tax liabilities. As from April 2011, these benefits will attract income tax and NICs.

Standard Life says that new anti-forestalling rules, which came into effect on December 9th, will stop employers making any new payments to these schemes. John Lawson, the head of pensions policy at Standard Life, said that people who already have funds in EBTs or EFRBS could be subject to admin charges of more than £5,000 which will diminish the value of their fund.

High earners had been using EFRB schemes as an additional way to fund their retirement since pension contributions were capped. If these contributions were seen to be genuine and constituted a salary sacrifice from the employee, they did not attract PAYE deductions. The new legislation will bring these schemes into line with government approved pension schemes.

As from the start of the new tax year, any third party provision, such as a reward or loan, made to an employee in connection with their employment, will be taxable.

HMRC expects to receive an additional £500 million a year as a result of the new legislation. It is as yet unclear whether these new rules might be applied retrospectively and Treasury clarification is expected over the coming weeks.

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Auto-enrolment pension scheme comes under fire

The auto-enrolment pension scheme will cost SMEs and umbrella companies an average of £2,550, but the true cost of administering it could be horrendous, warns the FSB.

As from 2017, all businesses will be required to pay 3% of each employee’s salary into a pension fund. So, the cost for a company with four employees, all earning £25,500, would be £2,550.

The FSB’s policy chairman, Mike Cherry, said that whilst it is imperative that everyone gets a chance to save for their retirement, the automatic enrolment scheme is going to be very costly for the smallest businesses.

The coalition has implemented measures to make it easier for micro firms to comply with the enrolment procedures, but it will still cost these small firms a minimum of £2,550 each year to make the pensions contributions.

According to the government, it will cost £46 per employee for a micro firm to administer the scheme. The FSB on the other hand believes it will cost much more and has called on the government to publish an impact assessment as soon as possible. The Federation wanted the government to exempt micro firms completely from the pensions legislation and it is now concerned that the Pensions Regulator will come down hard on the smallest businesses.

Contractors who work through their own limited company will not have to join the state run pension scheme. Umbrella companies on the other hand will have to, but contractors employed by them will have the option of opting out. Umbrellas will have until August 2014 to implement a scheme for their contractor clients.

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FSB says micro firms should be exempt from new pension laws

The requirement for all employees to be enrolled automatically into a pension scheme is due to be implemented in 2012, but it seems there are still some aspects of the legislation that are causing concern.

The FSB for example is very disappointed that micro firms are going to need to comply with the legislation. The Federation argues that the changes are too complicated for a micro business to implement and the greater majority of small business owners do not know enough about pensions to be able to choose a suitable scheme for their staff.

Research carried out by the FSB showed that 70% of business owners are not confident about choosing an employee pension scheme. The government has acknowledged this and said that small business owners will not be liable if something goes awry with the scheme they have selected.

Both the REC and the FSB are pleased to learn that there will be a three month waiting period before automatic enrolment and employees don’t have to be enrolled if they earn less than their personal income tax allowance threshold.

The three month waiting period should come as a relief to recruitment agencies and contractors alike. Pension provisions for temporary workers who work a couple of weeks for one agency and then a couple for another could have got very complicated if automatic enrolment commenced from day one! An agency temp can however opt into a scheme before the waiting period is up if he/she so desires.

The pension scheme created by the government, the National Employment Savings Trust, will proceed as planned to help businesses comply with the new legislation and NEST liabilities will fall under the auspices of the Department for Work and Pensions.

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Those nearing retirement want more taxation advice

A new survey by Just Retirement has found that workers who have retired or are nearing retirement would like to receive more guidance on taxation and other issues. This can include those working through umbrella companies.

33% of retirees would like to get more information about their entitlement to benefits and pensioners on a whole are confused about taxation.

Head of research, Nigel Barlow, said that retirees face varied and complex issues and it is therefore hardly surprising that they are very interested in receiving further guidance. Many pensioners are missing out on benefits they are entitled to because the system is difficult to navigate, he added.

The group also noted that 63% of their customers research online to find the best annuity deal.

Meanwhile research from retirement specialist LV= has discovered that around 1.2 million working people and freelancers over the age of 50 may cash in their home to help fund their retirement. In fact a new acronym has sprung up for this group of people – HIPpies (Home is Pension).

Just 19% of the over 50s feel their current finances are on track to adequately fund their retirement and 41% think they may need to delay retiring for financial reasons.

19% plan on delaying retirement because an average of £21,706 has been wiped off the value of their home due to the volatility in the housing market. However, 23% still intend to use home equity as a means of funding retirement and a further 9% will take advice on doing so prior to retirement.

44% of the over 50 age group who work still have mortgage debt and 34% of the over 60s are in the same position.

The picture doesn’t look any brighter for the under 50s either. Nearly 50% of them think they are not proactively planning for retirement and although many are in company pension schemes, they would like to see their employer provide pension advice.

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Should umbrella company contractors be saving or spending?

Last week, the Bank of England controversially hinted that we should be spending rather than saving.

This is bound to leave a lot of people, including umbrella company contractors, feeling rather confused, especially when the financial experts have been telling us to save, save, save for our retirement.

The low base rate of 0.5% has meant that savings accounts receive little to no interest and a lot of people have had to dip into their capital to make ends meet during the recession. So why are we are being told to spend more?

Comments from the Deputy Governor of the Bank of England will no doubt cause outrage amongst older savers. He said that they could afford to suffer the current low returns on their savings as a lot of them have benefited from previous huge property price increases. He added that people should not expect to live off the interest generated by their savings.

In related news, research undertaken by uSwitch has discovered that almost one in four people have had charges levied on them because they did not understand the terms and conditions of a financial product they had signed up to. This financial ignorance has already cost Briton’s around £250 million. On top of which, 71% say their lack of financial knowledge is the reason they got into arrears.

It would appear that as the nation gets further in debt, our knowledge of all things financial decreases. Ann Robinson, a director at uSwitch, has called on the coalition to make financial education a national school curriculum subject. If it does, what advice will our young people get? Spend or save? That’s the million dollar question at the moment!

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Umbrella company contractors need to consider their retirement

95% of people, including contractors, nearing retirement age aren’t ready for the financial implications it will bring, according to MGM Advantage.

This is a dramatic increase from the 61% who said they were not fully prepared in 2008 before the credit crisis hit the UK.

The survey, which is conducted annually, showed that 1.2 million adults aged 55 or above who are still in employment do not feel as if they are prepared for retirement. The data also shows that men are slightly more likely than women to feel prepared.

Only 15% (7 million people) have sought professional advice about retirement and 8% have referred to their bank. A lot of people hope to continue working past the normal retirement age, and 33% of those aged 65 or over expect to continue working until they are 71. A further 9% said they expect to be working at least until they reach the age of 80.

One of the director’s at MGM Advantage, Craig Fazzini-Jones, said he found it extremely worrying that such a large amount of people are unprepared for retirement. He said it was vital for people to be proactive with regards to their finance and pensions, and to seek professional advice prior to retiring. Without this, he said that more people will be working longer in order to get an adequate retirement income.

A retirement calculator could prove to be a useful forward planning tool, according to Ark Financial Planning. Phil Perry, a co-director of the firm, said that many people are still relying on their property to fund retirement, rather than ensuring they have sufficient cash put away.

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