Pensions In 2016

It is becoming a truism that in pensions each year is more interesting than the last. Interesting for lawyers that is as more and more layers are added to UK pension regulation.

And if 2015 was an interesting year for UK pensions, then 2016 has the makings of being an interesting year too. This year's common themes being a simplification exercise that simplifies very little and the age-old Government favourite of "bringing forward tax revenues".

Tax revenue has been something of a constant for UK pensions. 2015 was the year of pension freedoms agenda. This gives pension savers the option of taking their pension pots in a variety of ways, some of which could easily generate a big tax bill. The Government attempted to close off its own risks through the magic of "pensions guidance", much of which sits on a website (Pensions Wise) which was criticised by the Work and Pensions committee as being unfit for purpose.

At the same time, one of the UK's growth industries, pensions liberation, hitched itself firmly to this pension freedoms bandwagon asking the question of why is it okay to take your entire pensions pot at 55 but not at 54 even if you are in financial difficulty? Pensions liberation also muddied the waters between risky but acceptable retirement planning and scams where pensions savings end up in a tax haven but the tax bill sits with the saver.

So, what's to come in 2016?

Contracting out and the state second pension

Up to April 2016, the UK's state pension system is based on two tiers. One is the state pension which is not something that alone will support a comfortable retirement. Then there is the state second pension system in its various iterations which tops this up on a basis that even the Government has some difficulty following. The benefits system steps in where the end result of this structure is penury.

From April 2016, the Government will replace this with a single tier system that for most (but not all) people should provide a bigger state pension and which, if nothing else, has the merit of being easier to understand. Unless you are in the transitional group who will have an unholy combination of new and old system state pensions in which case pension planning for you will probably remain confusing.

With the abolition of the state second pension comes the abolition of contracting-out. Contracting-out allowed employers to use their pension scheme to provide benefits replacing the state second pension. In return they and...