2012 Brought More Change for UK Pensions

04 January, 2013

For anyone following the UK pensions’ industry over the last several decades, one thing has remained certain – change – and 2012 did not disappoint. The Chancellor made several important announcements in his Autumn Statement affecting UK pensions.

UK final salary schemes continue to be heavily in deficit. In May 2012, they hit a record deficit level of £312bn. A report issued in September 2012 showed that 11 companies in the FTSE 100 had pension liabilities greater than their equity market value (BT, BAE and RBS amongst others). While the deficit did decrease by December to £244.7bn, these sobering statistics have been caused by a number of factors including a fall in equities, the Bank of England’s quantitative easing programme and people living longer. Some also argue that the way pension liabilities are currently measured create artificially high pension deficits. As a result, the Chancellor announced a review of the methods used by companies to assess the health of their final salary schemes. This review could result in an automatic reduction in reported deficits and the amounts that companies will need to put aside to meet future pay-outs. While welcomed by many in the business community, there is concern that changes could result in sudden unexpected deficits in the future.

If you have a deferred UK final salary scheme, a good question to ask is will my pension fund have sufficient value to meet my pension benefits in the future?

In the Autumn Statement, the Chancellor also bowed to pressure to reinstate the 120% drawdown limits for those in capped drawdown pension schemes .This reverses a change implemented in April 2011 when the drawdown limit was reduced from 120% to 100%. Given low gilt yields and the impact of the European Gender Directive (equalising male and female annuity rates), UK annuity rates remain at an all-time low. Consequently, income drawdown can offer a valuable alternative to access retirement income.

Pensions are often perceived as being complicated and, consequently, are often neglected by expatriates until retirement draws near. However, with the UK pension landscape constantly changing, it makes sense to have your UK pension arrangements reviewed by a pension advisor who understands the complexities faced by expatriates. In certain cases there can be ways to improve upon existing pension arrangements which should not be overlooked.