Pensions in 2020 – the changes you’ll see this year
Pension legislation never stands still. Successive
governments have tinkered with rules, legislation, allowances and payments and
2020 will be no different in this regard.
So, to help you understand what changes are in the pipeline,
here’s your complete guide to the pension changes coming in 2020 – at least the
ones we know about so far.
General Election result means pensions legislation set to
proceed
The Conservatives included a number of pension-related
pledges in their recent manifesto, and the decisive outcome of the election
means that they can now implement these commitments.
These include:
- A review of the Tapered Annual Allowance, and
changes to this could affect anyone earning in the region of £110,000 to
£210,000 - Raising the National Insurance threshold to
£9,500. This impacts how much people will need to earn each week to contribute
towards their eligibility for the State Pension - A review of ‘net-pay’ schemes to try and ensure
that savers in net-pay schemes
receive the same level of tax relief on pension contributions as savers in
relief-at-source schemes - Reintroduce the Pension Schemes Bill which fell
on the dissolution of the previous parliament. This bill introduced several
changes, including the introduction of ‘defined ambition’ pension schemes and
measures to push forward pension dashboards.
Nigel Peaple, Director of Policy and Research at the
Pensions and Lifetime Savings Association, said: “I congratulate prime minister
Boris Johnson on his election win and look forward to his government’s renewed
energy to reform pensions so everyone has a better income in retirement.
“Ensuring adequate contributions, fostering effective
engagement and allowing well-run schemes to operate at appropriate scale
provides the blueprint for making the greatest difference to the greatest
number of people. We must get on with improving the system.”
State Pension set to rise in April 2020
The rise in the State Pension age to 66 (for men and women)
is set to be complete by October 2020 as the transition phase comes to an end.
If you’re in receipt of the State Pension, or you will be in
2020, there is good news as the ‘triple-lock’ commitment to State Pension
increases means the weekly amount is set to rise by almost 4% from April 2020.
The full new State Pension will be £175.20
a week, up from the current £168.60. And, with the government having committed
to retaining the triple-lock for the duration of this parliament, means that
pensioners can expect to see their pension increase by at least 2.5% every
year.
Note that the most recent information
shows around 37% of people reaching State Pension age receive less than the
full amount, with approximately 27% getting more than the full amount.
Ensuring you get an individual State
Pension forecast and chatting to your financial planner is the best way of
getting an accurate picture of how much you’ll retire on.
Lifetime Allowance rise
While the rise in
the value of the State Pension is determined by the triple-lock, changes to the
Lifetime Allowance are linked to price inflation, not earnings growth.
This means that
the Lifetime Allowance will only increase by 1.7% in April 2020, to £1.073
million (up from £1.055 million).
This represents the maximum amount that
can be saved into a pension while still receiving tax benefits enjoyed by
pension savings, and so any increase is useful even if it is only a small rise
in 2020.
For Defined Benefit
pensions, the limit is set as an annual income and is expected to increase from
£52,750 to £53,750.
Age 50 or over? Expect to receive a pension ‘wake-up’
pack
Since 1 November 2019, pension providers have been obliged
to issue ‘wake-up packs’ to clients. These packs are designed to help
individuals engage with their pensions, and initial communication starts at age
50.
Packs then need to be sent at least every five years until
you have fully crystallised your pension pot and could continue to be sent
after the age of 75. Other ‘triggers’ could mean packs are sent more regularly
and so you may start to receive these packs annually.
These new-style packs contain risk
warnings and may lead you to go back to your adviser to check the recommended
course of action.
Get in touch
If you have received
a ‘wake-up’ pack from your pension provider, or if you’d like to discuss your
pension and retirement planning, please get in touch. Email info@depledgeswm.com
or call (0161) 8080200.
Please note
A pension is a long-term investment not normally accessible until 55. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected the interest rates at the time you take your benefits. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
