We have to date considered the major failings of current pension schemes, this blog aims to be more positive and offer proposals for a defined benefit contributory scheme to replace such outdated schemes.
Aims – to replace the current outdated State Pension with an affordable scheme to embrace all those in work, including those in occupational schemes, and guarantee an adequate income in retirement, suitably index linked. It should reflect contributions paid and be fair, but with adequate poverty safety nets.
Scope and Criteria - Although primarily intended for those in work it would be designed to run continuously through work and retirement as a flexible scheme, with the main provisions being:-
o Compulsory contributions from age 25 to 64 with retirement available at age 65
o Retirement from age 55 at lower pension level; or by AVC’s: with AVC’s available from birth to 24.
o Final salary based on wage indexation (taken at 3% currently) and Fund accumulation.
o Basic aim to give 40 to 50% of final salary based on contributions.
o Pension benefits to be inflation proofed, i.e. increase annually.
o Fund accumulation based on unit build up. Units bought monthly at current Fund value giving simple and effective average salary fairness. No Bid / Offer differential.
o Funds treated as individual personal savings and protected as such.
o Tax free lump sum excluded but subject to AVC’s.
o Tax relief capped at 20% with maximum contribution limit at lower band upper threshold plus allowances but increased for dependent partner.
o Annual statements showing individual fund accumulation and growth, and performance
o Fund can be extended to those not working, i.e. unemployed, by State unit purchase.
o State or independent body to set guidelines and growth / investment return targets
(AVC – Additional Voluntary Contributions)
Primarily it is intended for the population in work who pay National Insurance contributions, together with any dependent partners, and would be based around the National Average Wage.
It will incorporate the pension part of such contributions which will be paid directly by the State as a refund of the equivalent part of such contributions. Welfare pensions to remain with the State.
Effectively NI rebate, fixed on NAW, is the baseboard of the scheme for low earners, but other contributions would be wage related, and can be increased by choice.
In order to avoid unequal wealth distribution a cap on tax relief of say twice average wage and possibly on existing NI rebate/relief will be necessary; dependent on cost and approach to existing schemes.
The scheme would be designed to replace or complement current State, Public Sector and Private schemes, but not necessarily run by the State; possibly by newly formed Mutual Pension Societies, similar or existing bodies. Good growth, management and value for money return would be the main criteria.
The next blog will consider the possible implementation, transition to and basis of the scheme.
Savings Annuities Public Sector NHS Teachers Police Local Government
No comments:
Post a Comment