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Pensions in 2016 Tom McPhail Head of Retirement Policy Hargreaves Lansdown 07.03.2016

Pensions in 2016 Tom McPhail Head of Retirement Policy Hargreaves Lansdown 07.03.2016. A snapshot of UK Pensions. Taxation Current private pension provision Funding rates Demographics Pension freedom State pension. The UK pension tax system now.

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Pensions in 2016 Tom McPhail Head of Retirement Policy Hargreaves Lansdown 07.03.2016

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  1. Pensions in 2016 Tom McPhail Head of Retirement Policy Hargreaves Lansdown 07.03.2016

  2. A snapshot of UK Pensions • Taxation • Current private pension provision • Funding rates • Demographics • Pension freedom • State pension

  3. The UK pension tax system now • Contributions attract tax relief at highest marginal rate – 20%, 40% or 45% • Tax-free growth in the pension • 25% tax-free lump sum from age 55. Remainder taxable at marginal rate • Annual Allowance of £40,000. Carry forward from 3 previous tax years available • Tapered Annual Allowance applies from 06.04.2016 on incomes above £150,000 • Lifetime allowance of £1.25m, down to £1m on 06.04.2016 Tax rules can change and benefits depend on individual circumstances.

  4. Lifetime Allowance Annual Allowance Lifetime Allowance

  5. Auto-Enrolment • 78,789 employers have now gone through Auto-Enrolment • Over 21 million employees have gone through Auto-Enrolment • Over 5.8 million employees auto-enrolled • However 5 million have also been left behind • 92% feel Auto-Enrolment was a good idea • 70% of Auto-Enrolees felt their understanding of pensions had improved Sources: The Pensions Regulator (Declaration of Compliance Report, Dec 2015) & HL Auto-Enrolment survey 2015

  6. Auto-enrolment contributions • Contribution Bases & Minima:

  7. Auto-enrolment contributions

  8. Budget reforms 2014 – Key highlights • No compulsion to buy an annuity • Free access to pension savings from age 55 • Inheritable pension pots • Main income options: • Full or partial lump sum withdrawal (UFPLS) • Income drawdown • Annuity purchase • Blend of the above

  9. Annuity sales post Budget Budget Announcement 19 March 2014 Source: Hargreaves Lansdown

  10. Current retirement trends Source: Hargreaves Lansdown (November 2015) Source: ABI (November 2015)

  11. Current retirement trends Pension pot size Source: Hargreaves Lansdown Retirement Intentions Survey (2015)

  12. Current retirement trends Source: FCA: Retirement Income Market Data -July-Sept 2015)

  13. Underestimation of life expectancy Perceived 82.1 Perceived 82.4 Estimated 87.8 Estimated 90.2 • Source: Hymans Robertson

  14. Top 5 uses for ‘flexible’ money Holding in cash 27% Investing in the stockmarket 22% Investing in ISAs 22% General living expenses 20% Paying off mortgage/debt 14% Source: Hargreaves Lansdown (November 2015)

  15. Essential & non-essential expenditure AGE Source: ILC, UK 2015

  16. Pension Wise

  17. Summary • UK pension provision is changing very rapidly • Pension Freedom, Auto-enrolment, Pension Tax Review, State Pension Reform • Overall provision is currently declining • Funding rates have to imcrease substantially

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