What Does 2019 Have In Store For Pensions?

Year 2019 is likely to bring major changes in the United Kingdom in terms of workplace pension contributions, increase or more support for the self-employed, launch of long-awaited pension dashboard, rise in state pension, cold calling ban, changes in tax relief and last but not the least and most awaited event of the year 2019 Brexit.

Although the United Kingdom government is still in gridlock on how to proceed with the Brexit, its citizens, especially those who are planning for their retirement are on tenterhooks because pensions and changes in its existing policy will by and large depends on how the economy respond to Brexit and where the decision makers are still wrangling over how or whether to exit the EU, it’s possible repercussions are looming over almost everyone’s financial future because only a strong economy can guarantee good pensions i.e. if the economy is doing well, government has taxes to pay for the state pensions, good salaries or wages to pay for employee contributions and good profits to fund employer pension contributions. However, Brexit has the capacity to swing the economy to other side as well and if the economy grinds to a halt, things get trickier and complicated.

What does 2019 have in store for pensions?

Read More: Income Pension Tax Rules and Calculator

As per a referendum held on 23rd June 2016, as per law the UK is scheduled to leave the EU on 29th March 2019 and with its exit.

The possible changes or effect on your finance for the year 2019 are as below:

  • State Pension: State pension is nothing but a weekly payment which you as a citizen of UK government are likely to get once you attain a certain age and the only criteria to qualify for the same is if you have made your National Insurance Contributions and if you reach state pension age before April 2016, you are entitled to receive Basic State Pension in addition to additional state pension, if applicable. However, if you reach pension age post April 2016, you are entitled to receive the new single-tier state pension; however in both the case you are protected by triple-lock guarantee. State pension is paid every four weeks and is deposited directly in your registered bank account.

    Any change in the state pension is directly related to the inflation or consumer price index or CPI and as per the Office of National Statistics, inflation has fell to 2.4% in September as compared to 2.7% in August and since it is below average earnings which was 2.6%, the government is likely to use the later for revising the state pension from 6th April 2019.

    Changes in the state pension was an awaited one, however as mentioned above, it is all set to increase by 2.6% from 2019, which is a lot lower than expected, which implies that as per the New State Pension, retirees will receive £168.60 per week starting from April 2019 i.e. it has increased by £4.25 per week from its last value and thus they will receive an extra of £221 by the end of the tax year; increasing the annual income from £8,546.20 to £8,767.20. For the ones who receive Basic State Pension, year 2019 brings in change of +£3.25 per week making their state pension £129.20 per week, which means a total increase of £169 per year in their annual income making it up to £6,718.40.

    Considering the buoyancy of the market from 2015, it is the pension savers who are most vulnerable to any market strife, especially the ones who have invested in drawdown schemes. As per the UK legislation, the rate at which the State Pension changes is based on the triple lock system which means that it is the greater of annual price inflation as measured by the Consumer Price Index, which also gives retirees a guaranteed rise in income every year. What makes changes in the State Pension 2019 all the more important is the fact that it is the first state pension increase for men ever since the system was introduced in the year 1948 i.e. the state pension age for men has increased to 66, which is expected to touch 67 years by 2028.

    New State Pension (Weekly) New State Pension (Annual) Basic State Pension (Weekly) Basic State Pension (Annual)
    6th April 2018 – 5th April 2019 £164.35 £8,546.25 £125.95 £6,549.40
    6th April 2019 – 5th April 2020 £168.60 £8,767.20 £129.20 £6,718.40
    Change +£4.25 per Week +£221 per week +£3.25 per week +£169 per week
  • Pension credit 2019/2020: It is a means-tested benefit given to retired workers as per their earnings. Pension credit is made up of two parts i.e.

    • Guarantee credit: Guarantee credit will see an increase of £4.25 and £6.45 per week for single and couples respectively i.e. you will receive guarantee credit of £167.25 per week if you are single and £255.25 per week as a couple.
    • Savings credit: Savings credit is an extra payment which the government gives you as a reward for saving towards your retirement and acts as an incentive in order to encourage planning and saving for your old age. Year 2019 will see an increase of £0.32 per week for single person and £0.36 per week for couple i.e. the maximum you are entitled to get as savings credit as a single person is £13.72 per week as compared to previous £13.40 per week whereas maximum for a couple goes up to £15.35 per week against £14.99 per week.
  • Pension lifetime allowance: The pension lifetime allowance is the maximum amount you can put into your retirement savings without paying tax on it and is increased by the rate of CPI inflation. Year 2019 will see an increase in the pension lifetime allowance from £1,030,000 to £1,055,000 which means you can put an extra of £25,000 in your retirement savings without attracting any tax on the same.

  • Pension auto-enrolment: April 2019 is all set to bring in changes to the pension auto-enrolment by increasing the minimum automatic contributions to 8% (3% employer and 5% employee contributions) from 5% (2% employer and 3% employee). Under auto-enrolment, all eligible employees are signed up to their workplace contributions, which are automatically deducted from their salary and are topped up by employer contribution. Under workplace contributions, all eligible employees are signed up automatically if they meet the age and earning criteria, however they are allowed to leave the same if they wish so which also means that if there is an increase in the employee contributions by a large value, chances of walkout from the scheme will increase as well. Anyone who wish to walk out from the workplace pension should understand that they will not only lose out on the tax relief but also on the employer’s contribution, which if combined is almost double the amount they are putting in and thus it is something which should be handled carefully.

  • Cold calling ban: Another important change that year 2019 is expected to bring in is ban on cold calling and the main reason behind the same is that the pension rife has been on rise ever since pension freedom was introduced in the year 2015 and as per statistics, the average victim of pension fraud has lost £91,000 of his hard earning savings. UK government has decided to impose a ban on cold calling which would prevent scammers or frauds from making unrequested calls to pension savers in order to save later from getting scammed out of their pension savings.

  • Pensions dashboard: In order to make life of pension savers, UK government is planning to launch pension dashboard and intended to make year 2019 as one of the easiest year where you can put yourself in the driving seat of your own retirement planning. Under the pension dashboard, pension savers can get all information related to their pensions including their state pensions in one place online from the ease and convenience of their home. Having entire information under one place will be of great help for people wanting to keep track of multiple pensions and making it a lot easier to work out if they are on track or not for the retirement.

  • Changes in the tax relief: While level of tax-relief offered to pension savers has always been a contentious point in the previous years, the government is likely to bring in some breather both for the higher and lowest earners and is expected to change the existing rules of tax relief to make sure that everyone gets their full entitlement.

Under the new state pension that is going to be effective from April 2019, women and carers are going to be better off and most benefited from the same and are likely to get National Insurance credits for things such as too ill to work or being a carer or unemployed. Another group of people who are likely to enjoy the new state pension are self-employed ones because their pension contributions will be counted for more in the longer run.

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