UK State pension age rise to 68 will not be brought forward yet

 By Kevin Peachey & Sam Francis

Cost of living correspondent and political reporter

A rise in the state pension age to 68 will not be brought forward yet, the government has announced.

Those born on or after 5 April 1977 will be the first cohort to work to 68, under current plans. A 2017 government review suggested expanding this to include those born in the late 1960s.

The work and pensions secretary said the pension age would not be changed until a further review was carried.

A decision is now expected in 2026, after the next general election.

By law the government is required to examine planned changes to the system every six years.

A recent report found life expectancy for retiring Britons is now two years lower than when the government last reviewed the state pension age in 2017.

Labour said increases in life expectancy were being "dragged down" by a "rising tide of poverty".

A separate review by Baroness Neville-Rolfe looking at what factors the government should take into account when setting the pension age was published on Thursday.

• When do you get the state pension?
• Chancellor announces state pension to rise by 10.1%

And on Thursday, a further review was commissioned by Work and Pensions Secretary Mel Stride to look into raising the state pension age.

A further study was needed as the previous reviews were "not able to take into account significant external challenges including impact of the Covid pandemic and global inflation caused by Putin's illegal wat in Ukraine", Mr Stride said.

The new review will report within two years of the new parliament, he added.

Labour supported the government's position, but shadow work and pensions secretary John Ashworth said the government had last year said bringing forward an increase in state pension age "was absolutely necessary for the long term sustainability of the public finances".

"Now it turns out with general election only a year away the and the government trailing so badly in the polls, not raising the state pension age is not so reckless after all," he added.

The state pension is a monthly payment currently made to 12.5 million people who have reached qualifying age and have paid enough in national insurance contributions.

Next week, the amount paid will increase by 10.1% in line with the rising cost of living.

That means it will be worth:

• £203.85 a week (up from £185.15) for the full, new flat-rate state pension (for those who reached state pension age after April 2016)
• £156.20 a week (up from £141.85) for the full, old basic state pension (for those who reached state pension age before April 2016)

Work and Pensions Secretary Mel Stride will make a statement in the House of Commons later to confirm the conclusions of the latest statutory review on the pension age.

The Daily Express newspaper, where the story first appeared, said Mr Stride would announce a new review to be carried out after the next election.

The qualifying age to receive the pension has been a matter of intense speculation, with two reviews having been considering the appropriate age and how that should be calculated.

The main argument for accelerating a rise in the state pension age has always been that people are living for longer.

The state pension bill is estimated to grow by 35% to around £148bn by 2027-28 according to the Office for Budget Responsibility.

The Institute for Fiscal Studies, a leading economic research group, said that it was a "reasonable estimate" that increasing the state pension age by one year in the late 2030s would save the Government £8bn to £9bn a year in today's terms.

But experts point out that, although the cost of the state pension has been rising, life expectation has stalled recently.

There is also a wide difference in life expectancy across different parts of the country, with people generally likely to live longer in more affluent areas. That creates an added complication when setting a state pension age which is uniform across the UK.

At the moment, the age limit is based on ensuring no-one spends more than one third of their adult life in retirement.

State pension increases currently set out in legislation are:

• A gradual rise to 67 for those born on or after April 5, 1960
• A gradual rise to 68 between 2044 and 2046 for those born on or after April 5, 1977

Proposals to raise the state pension age are often controversial. Riots broke out on the streets of France after the French government decided to force through pension reforms without a vote in parliament.

https://www.bbc.com/news/business-65120317

Leases, Retirement Obligations and Receivables Accounting

Leases, pension obligations and securitized receivables are like debt obligations.

Accounting rules can allow them to be off-balance-sheet items.

Such items can bias ROIC upward, which makes competitive benchmarking unreliable.

However, valuation may be unaffected.



Operating Leases Accounting

Adjust for operating leases:

• recognize the lease as both an obligation and asset on the balance sheet (which requires an increase in operating income by adding an implicit interest expense to the income statement and lowering operating expenses by the same amount),
• adjust WACC for the new leverage ratios, and 
• value the company based on the new free cash flow and WACC  

Assuming straight-line depreciation, an estimate of a leased asset's value for the balance sheet is:

Asset Value at time t-1 = Rental Expense at time t / [ kd + (1/Life of the Asset)]

kd = cost of debt




Receivables Accounting

(a) When company sells a portion of its receivables

Another source of distortion occurs when a company sells a portion of its receivables.

This reduces accounts receivable on the balance sheet and increases cash flow from operations on the cash flow statement.

Despite the favourable changes in accounting measures, the selling of receivables is very similar to increasing debt because

• the company pays fees for the arrangement,
• it reduces its borrowing capacity, and 
• the firm pays higher interest rates on unsecured debt.

(b) Securitized receivables

In the wake of the financial crisis of 2007, accounting policy has tightened.

Securitized receivables are now classified as secured borrowing.

In these situations, no adjustment is required

In the infrequent cases where securitized receivables are not capitalized on the balance sheet,

• add back the securitized receivables to the balance sheet and 
• make a corresponding increase to short-term debt.

These alterations will determine the necessary changes to return on capital, free cash flow, and leverage.

Interest expense should increase by the fees paid for securitizing receivables.



Pension Accounting

Companies must report excess pension assets and unfunded pension obligations on the balance sheet at their current values, but pension accounting can still greatly distort operating profitability.

Three steps should be taken to incorporate excess pension assets and unfunded pension liabilities into enterprise value and the income statement to eliminate accounting distortions.  

These three steps are:

1. identify excess pension assets and unfunded liabilities on the balance sheet,
2. add excess pension assets to and deduct unfunded pension liabilities from enterprise value, and
3. remove the accounting pension expense from cost of sales and replace it with the service cost and amortization of prior service costs reported in the notes.

Much of the necessary information for this process appears in the company's notes.

The investment fund that is guaranteed to lose you money

Pension savers who hold money in cash are being charged more in fees than their money earns in interest.

Clerical Medical's Cash Pension fund pays interest at 0.5pc while charging a 1pc annual management fee Photo: chris brignell / Alamy

By Richard Evans

11:39AM GMT 03 Feb 2012

Comment

As a result, their investments are guaranteed to fall in value.

Savers often make use of cash funds within their pension plans to shelter from volatile markets or while they are deciding where to invest. But Clerical Medical's Cash Pension fund pays interest at 0.5pc while charging a 1pc annual management fee, resulting in a fall in value.

The practice came to light when a Telegraph reader wrote to our troubleshooter, Jessica Gorst-Williams, to complain about the fund.

The reader, HG from Surrey, wrote: "This fund can only result in investors losing money, as the cash fund is invested in Bank Rate securities producing 0.5pc but Clerical Medical makes a charge of 1pc.

"The fund is used to park funds when switching investments. I feel investors should be warned of this pitfall or better Clerical Medical should change its charges while the Bank Rate is so low."

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Jessica replied: "This is a phenomenon that needs to be watched out for by anyone with money in a cash, or similar, fund. With interest rates as low as they are, skimming profits off such sums in the form of management charges or whatever has become much more transparent than it used to be.

"So, not only is such money being whittled away by inflation, but a higher percentage is being creamed off by some financial providers than the underlying sum is able to generate itself."

She said Clerical Medical – now under the umbrella of Scottish Widows, which is in turn owned by state-backed Lloyds Banking Group – had admitted that the returns on such cash investments had not been enough to fully offset the 1pc annual management fee. This has resulted in the unit price falling slightly.

"I cannot change things for you," Jessica said, "but at least I can fulfil your request to make others aware of this."

http://www.telegraph.co.uk/finance/personalfinance/investing/9059020/The-investment-fund-that-is-guaranteed-to-lose-you-money.html

EU pension rules could hit millions of pensioners

Workplace pension schemes with over 12 million members could be forced to close if “destructive” new EU rules come into force, the Pensions Minister has warned.

Workplace pension schemes with over 12 million members could be forced to close if “destructive” new EU rules come into force, the Pensions Minister has warned. 

By James Hall, Consumer Affairs Editor

7:00AM GMT 09 Dec 2011

The European Commission is considering introducing rules that will make the UK's 6,850 companies with final salary pension schemes pump billions of pounds into the schemes to reduce their deficits. The rules are designed to make pension schemes in EU member states more financially robust.

However Steve Webb, the Pensions Minister, warned that the guidelines from Brussels will land British companies with a “huge bill” of £100 billion. He said the high cost would force many employers to close their pension schemes for good.

“What is being done in the name of protection could mean the destruction of some of the best British pensions,” he said.

The minister also said that if companies spent money plugging their pension deficits they would have less money to invest in growing their own businesses. The rules would therefore damage Britain’s economic recovery.

“These costs could force many employers to close their pension schemes and would have a massive negative impact on growth and our economic recovery. This is a £100bn tax on growth,” Mr Webb said at a meeting in Brussels, where he is building a coalition of European countries to oppose the plan.

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  06 Dec 2011

In defined benefit retirement schemes, an employee receives an annual payment on retirement based on his or her final salary. Although most final salary – or defined benefit – schemes are now closed to new members, an estimated 12.5 million of current and former employees still benefit from them. Most large companies - from Tesco to Unilever to Alliance Boots - have some kind of defined benefit scheme.

The EU rules under discussion are known in the industry as Solvency II. Under the EU’s thinking, reduced pension deficits would mean that pension schemes are safer and savers’ money is better protected. The combined pension deficits of final salary pension schemes run by the UK’s 350 largest private companies are currently estimated to stand at £80 billion.

However Mr Webb said that the UK already has pension protection in place through the Pension Protection Fund and the Pensions Regulator, which would effectively act as safety nets if UK pension funds ran out of money. He therefore said that the new rules “are not necessary”.

“I am determined to do all I can to ensure that this does not happen,” said Mr Webb.

Joanne Segars, the chief executive of the National Association of Pension Funds (NAPF), which represents 1,200 pension schemes, said that the EU plans are the “last thing that pension funds need”.

“These plans would ramp up costs dramatically. Businesses struggling with a flatlining economy would suddenly have to pump billions more into their pension scheme. This would mean less money for jobs and investment, at a time when the economy desperately needs both,” she said.

Ms Segars said that firms would be so badly hit by the new rules that they would “simply shut these pensions down altogether”.

“It would be a crippling blow for what is left of final salary pensions in the private sector,” she said.

The EU’s plans are currently in the discussion phase. It will set out draft legislation next autumn.

Business group the CBI has also spoken out against the proposals, branding them a “terrible idea”.

http://www.telegraph.co.uk/finance/personalfinance/pensions/8944344/EU-pension-rules-could-hit-millions-of-pensioners.html

You're never too young to start saving

Today's twentysomethings can expect to retire in their 70s. A good reason to postpone saving for the prospect? Quite the opposite.

If you don't start saving for retirement until you're middle aged, you have left it too late Photo: Howard McWilliam

By Richard Evans

3:24PM GMT 06 Dec 2011

13 Comments

Younger people probably didn't pay much attention to George Osborne's announcement last week to raise the state pension age from 66 to 67 from 2026, eight years earlier than planned.

But they should. Based on the principle the Government had previously set out of increasing state pension age in line with improvements in longevity, accountants at PwC calculate that the state pension age could be set to rise to 70 by 2050.

It means that anyone under the age of 30 will have a long wait before they can get their hands on the state pension.

If you've just finished university and are about to start your first job, you're probably not thinking too much about how you will fund your retirement.

To be fair, dealing with student debts, buying your first home and thinking of starting a family are likely to be foremost in your minds. But ignoring any thought of pension provision suffers from a fatal flaw: if you don't start saving for retirement until you're middle aged, you have left it too late. You will never be able to catch up with where you would have been if you'd started earlier.

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Here we explain why this is so, and suggest how those in their twenties can go about preparing for later life without sacrificing their more immediate goals.

I'M ONLY 20. SURELY I DON'T HAVE TO THINK ABOUT PENSIONS FOR AGES?

Starting to build those savings now will make the process a lot less painful.

You may have to rely on your savings for the last 20 years of your life – even if, as expected, we are retiring in our seventies by then. If you don't start saving for retirement until your fifties, you have just two decades to save enough money to last another two decades.

You don't need to be a financial expert to see that that's a very tall order. Something would have to give – either those last years of your working life would see a drastic fall in your living standards, or you would fail to save enough and face an impoverished retirement if you stopped working at the normal age. Many people would simply be forced to work longer.

If makes far more sense to use all five decades of your likely working life to save up the money to fund your final 20 or 30 years.

If you start saving at the age of 20 and put away £75 a month for your entire working life, your savings should produce an income for life of about £17,000 at retirement. Delay until 50 and the same monthly savings will produce an income of about £2,000. Even putting it off until the age of 30 would cut your likely income to £8,850.

Starting early doesn't just mean that you will save for longer. It also gives your investments longer to grow, and you earn interest on the interest. Experts call this "the miracle of compound interest" because it makes a huge difference to total investment returns.

"Saving for retirement is like a diet: what you do day in, day out over a long period is more important than action in fits and starts," said Steve Bee of Paradigm Pensions, a consultancy.

BUT SURELY THE STATE PENSION AND OTHER BENEFITS WILL GIVE ME AT LEAST A GOOD START?

Don't count on it. For one thing, the Government plans to sweep away means-tested benefits for pensioners and replace them with a flat-rate weekly pension of £140 for all. The state's top-up pensions, which paid an income linked to your earnings, are being abolished.

"Given the demographics, there is no reason to think support from the state in retirement will be anything other than at subsistence level," Mr Bee said.

SOUNDS SCARY. SHOULD I START A PENSION RIGHT NOW?

Start saving now, most experts suggest – but not automatically in a pension. In many cases, saving in Isas instead is just as good to start with – and Isas have the extra benefit that you have access to the money if you need it.

John Lawson, a pensions expert at Standard Life, said: "If you're young, saving into anything is good – Isa or pension.

"Pensions are a wonderful discipline but for a basic-rate taxpayer who has no problem maintaining the savings habit, an Isa is fine. You can always transfer to a pension later – in fact if you delay doing this until you're a higher-rate taxpayer, you will actually benefit."

But if you are offered a workplace pension, take it. Within the next few years, every company in the country will have to offer a pension – and enrol employees automatically. The total contribution from you, the company and government tax relief will be at least 8pc.

"You'd be daft to opt out of this auto-enrolment scheme," said Mr Lawson. "You will get a minimum 3pc contribution from your employer."

Ros Altmann, the director general of Saga, agreed that changes to state pensions and the death of final salary schemes meant that the new generation of workers would be "thrown back on private sources of income".

But she added: "Pensions are not the only answer. You could work longer, use your house to fund retirement, run a business and sell it, or take out a range of Isas. The 'pensions or nothing' idea has to change."

WOULDN'T I BE BETTER OFF PAYING BACK MY DEBTS FIRST?

It may seem crazy to save for retirement when you could use the money to cut your debts. But it's not a clear-cut decision – look at the interest rates you pay before deciding.

"If your debts are expensive, such as on credit cards, pay them off first," Mr Lawson said. "But if it's a mortgage or cheap personal loan, there's no reason not to save at the same time. If I'd waited until I was completely debt free before I started saving, I still wouldn't have a pension. You'd be crazy to make 'don't save before paying off debts' your mantra."

Mr Bee said: "Should you save at the same time as paying off debt? Yes if you get a workplace pension. If you opt out, you are adding to your burden in later life – effectively increasing your debts."

HOW MUCH SHOULD I SAVE?

Young people who want to retire on half their final salary will need total pension contributions of 10pc-15pc of earnings throughout their working lives, Mr Lawson said.

So top up your auto-enrolment contributions to about 9pc to get the total to that level. Ms Altmann said conventional wisdom put contributions at 20pc of your salary.

http://www.telegraph.co.uk/finance/personalfinance/pensions/8938276/Youre-never-too-young-to-start-saving.html