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Pensions: Are They Changing and What Are The Options?

May 18, 2017
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Pensions: Are They Changing and What Are The Options?

There has been much debate recently about the future of pensions and how secure they may be. With the UK general election looming, future policy on pensions differs with each manifesto. In light of this, here is a short article which will look into the current state of pensions in the UK.

Triple Lock

The triple lock on pensions is the safety net which was introduced in 2010 as the UK state pension had dropped to its lowest level. It ensures that the state pension will rise by average earnings, prices or 2.5%. Therefore, it has brought much security and stability to the UK state pension system.

With the general election coming up, however, this could change, as the Conservatives have not pledged to keep the triple lock, unlike Labour who have pledged to keep it until at least 2025. This has cast much doubt over the triple lock’s immediate future, especially since the Conservatives have a significant lead over Labour in the polls.

Tax Changes

Prior to the calling of a snap general election, the government had planned changes to tax relief on pensions. The money purchase annual allowance (the amount you can pay into a pension each year once you’ve started taking an income) was due to fall from £10,000 to £4000

This may still come into effect if the current government wins the election, but for now is has been halted. This is, however, likely to draw people’s attention to the current state of pensions, and perhaps encourage people to explore the different options to maximise money for retirement.

Stakeholder/SIPP

Stakeholder pensions have minimum standards set by the government in terms of transfers, fees, and contributions, and usually involve pension money being invested in stocks and shares. These are for people who want to make their own contributions but don’t want too much involvement in their investment.

SIPPs, on the other hand, are offered by the likes of Bestinvest, and give far more choice than a stakeholder pension, allowing freedom of choice over where money is invested, as well as healthy tax relief. With potential changes ahead, these two options are bound to factor into people’s decisions over which pension scheme (or schemes) they choose.

Ultimately, the future of pensions in the UK is uncertain, with much resting on the general election. With a variety of schemes to choose from, it is likely that people will be reviewing their options to try and stay ahead of any adverse changes which could affect their current or future scheme.

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