Pensions in 2016 Tom McPhail Head of Retirement Policy Hargreaves Lansdown

A snapshot of UK Pensions 2  Taxation  Current private pension provision  Funding rates  Demographics  Pension freedom  State pension

The UK pension tax system now 3  Contributions attract tax relief at highest marginal rate – 20%, 40% or 45%  Tax-free growth in the pension  25% tax-free lump sum from age 55. Remainder taxable at marginal rate  Annual Allowance of £40,000. Carry forward from 3 previous tax years available  Tapered Annual Allowance applies from on incomes above £150,000  Lifetime allowance of £1.25m, down to £1m on Tax rules can change and benefits depend on individual circumstances.

Lifetime Allowance Annual Allowance

Auto-Enrolment 14 Sources: The Pensions Regulator (Declaration of Compliance Report, Dec 2015) & HL Auto-Enrolment survey 2015  78,789 employers have now gone through Auto-Enrolment  Over 21 million employees have gone through Auto-Enrolment  Over 5.8 million employees auto-enrolled  However 5 million have also been left behind  92% feel Auto-Enrolment was a good idea  70% of Auto-Enrolees felt their understanding of pensions had improved

Auto-enrolment contributions To Sep 2017Oct Sep 2018Oct 2018 onwards TotalEmployerTotalEmployerTotalEmployer Qualifying Earnings Total pay between lower and upper limit 2%1%5%2%8%3% Set One Basic Pay3%2%6%3%9%4% Set Two Basic Pay which is at least 85% of Total Pay 2%1%5%2%8%3% Set Three Total Pay2%1%5%2%7%3% Contribution Bases & Minima: 15

Auto-enrolment contributions 18

19  No compulsion to buy an annuity  Free access to pension savings from age 55  Inheritable pension pots Main income options:  Full or partial lump sum withdrawal (UFPLS)  Income drawdown  Annuity purchase  Blend of the above Budget reforms 2014 – Key highlights

Annuity sales post Budget Source: Hargreaves Lansdown Budget Announcement 19 March 2014

Current retirement trends Source: Hargreaves Lansdown (November 2015)Source: ABI (November 2015)

Current retirement trends Pension pot size Source: Hargreaves Lansdown Retirement Intentions Survey (2015)

Current retirement trends Source: FCA: Retirement Income Market Data -July-Sept 2015)

Underestimation of life expectancy Source: Hymans Robertson Perceived 82.1 Estimated 87.8 Perceived 82.4 Estimated 90.2

Top 5 uses for ‘flexible’ money 1.Holding in cash27% 2.Investing in the stockmarket22% 3.Investing in ISAs22% 4.General living expenses20% 5.Paying off mortgage/debt14% Source: Hargreaves Lansdown (November 2015)

Essential & non-essential expenditure AGE Source: ILC, UK 2015

Pension Wise

Summary 32  UK pension provision is changing very rapidly  Pension Freedom, Auto-enrolment, Pension Tax Review, State Pension Reform  Overall provision is currently declining  Funding rates have to imcrease substantially