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UK roundup: PwC, TPR, AJ Bell, Baring Asset Management

UK - A significant number defined contribution (DC) pension pots would this week be worth no more than the contributions made to them over the last five years, PwC has said.

The consultancy also called on the Pensions Regulator (TPR) to be lenient when considering defined benefit (DB) schemes’ recovery plans, in light of recent equity market activity.

According to a new report published by the firm, the plummeting stock markets have left many DC members feeling they are in a worse position than if they had left their savings in cash.

PwC calculated that a 40 year old paying 5% of his gross salary into a DC pension over the past five years would have invested around £13,000 (€14,755) of contribution.

If the majority of these savings were invested in equity, then the pension would now once more be worth an estimated £13,000.

As for DB pension schemes, PwC warned that deficits were deepening and could force companies to increase contributions.

Jeremy May, partner in the pensions practice, said: “If markets remain low, those with scheme valuations currently underway or toward the end of year may face difficult negotiations with trustees and potentially demands for higher cash contributions. 

“With business conditions uncertain, this is the last thing companies need.”

Meanwhile, platform provider AJ Bell has said that more than 18,000 individuals are at risk of losing protection of their pension benefits when new auto-enrolment rules come into force from October 2012.
 
It said enhanced protection prevented individuals from facing significant tax charges if their pension benefits were valued at more than the lifetime allowance when they took benefits. But it said individuals lost enhanced protection where any contributions were paid to pension schemes. 

The new auto-enrolment rules require individuals to opt-out of pension schemes every three years to prevent contributions being paid, increasing the likelihood that contributions will inadvertently be paid in respect of those holding enhanced protection, according to AJ Bell.
 
Billy Mackay, marketing director, said: “An alternative would be to allow enhanced protection to be retained provided contributions do not breach a certain threshold, say, £1,000. 

“Very few of those holding enhanced protection will make contributions of up to £1,000, as the incentive is not there, so the impact on the Treasury would be minimal. 

“Conversely, the impact of this policy for anyone who holds enhanced protection and inadvertently allows themselves to be auto-enrolled could be significant.”

Finally, research from Baring Asset Management has found that 13.6m British adults (38%) do not have a pension.

Barings also found that 1.4m people who are 55 and older do not have a pension in place.

It said: “While it is not wholly surprising that a high proportion of people aged 18-24 do not have a pension, given other pressing demands on their income such as clearing debt and getting on the property ladder, it is worrying to learn that almost half of 25-34 year olds (47%) have not started saving into a pension - an age that is considered critical in terms of establishing the foundations of a pension fund.”
 
For those who have a pension in place, the study shows that 52% have a final salary pension provision, while one in three are in a defined contribution arrangement.

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