B, C and now A

The DWP is proposing a new type of pension scheme.

At present, pension schemes can be broadly divided into two types:

Defined Benefit (DB) Schemes which typically offer a retirement income, or a specific level of pension savings, based on a formula related to an employee’s salary and/or the length of service in the scheme. The classic example is the occupational scheme that offers 1/60th final pensionable salary for each year of service.

Defined Contribution (DC) Schemes which are more akin to savings plans. A DC schemes builds up a fund from invested contributions that are converted to a pension at retirement.  Personal pensions and the government’s default auto-enrolment scheme, NEST, are both DC arrangements.

DB schemes place inflation and investment risks solely with the employer and, as a consequence, have been disappearing from the private sector for some years – the latest report from the Pensions Regulator says less than one in seven private sector DB schemes still accept new members. In DC schemes, the risks are all left to the individual member, which can have unwelcome consequences if poor investment conditions coincide with their retirement date.

The government, and in particular Steve Webb the Pensions Minister, have been struggling to find some form of compromise between DB and DC. The result, now put out for consultation by the DWP is DA – defined ambition. To quote the paper, “A DA scheme would be a scheme under which members are given some form of guarantee in respect of their pension, but not complete certainty of the level of income that they will receive from it in retirement, or when it would be paid.” For example, it is suggested that an occupational scheme could offer a guaranteed level pension, but leave any inflation-proofing as a discretionary benefit, to be reviewed each year. Similarly a scheme could promise a particular rate of pension accrual, but reserve the right to change the retirement age to reflect rising longevity.

The paper has only a brief consultation period of six weeks, with draft legislation promised in the New Year. How much interest employers and pension providers will take in developing DA remains to be seen, particularly with all the other developments going on in the pension area. For now, the prospect of DA will probably do little to stop the move to away from DB to DC.



71% of employees ‘would prefer cash’ to Christmas party

24 Dec 2013

Over half of UK businesses arranged a Christmas party for their staff this year, but the majority of employees would prefer to be given the money spent per head as a Christmas payment instead.

London was the city where most employers decided to throw a Christmas celebration. 71% of London employers hosted a party for employees. This number was slightly lower in the South-West, at 66%.

A third of those questioned said that their employers shut their business over Christmas and New Year and that they were therefore required to take time off over this period.

Tom Gaynor, employee benefits director of MetLife UK, said that the results were ‘understandable with finances under pressure’ but pointed out that because Christmas parties are tax free for the employee, they would most likely be ‘better off enjoying the party’.

High Street sales ‘bounce back’

23 Dec 2013

Retail sales have experienced a welcome recovery in the year to December, according to a new report from the Confederation of British Industry (CBI).

The CBI’s latest Distributive Trades Survey revealed that grocers, department stores and clothing shops saw a strong increase in sales, following a previous fall in the year to November.

Sales are expected to continue to grow strongly in the year to January.

In total, 48% of respondents stated that sales had increased on a year ago, with 31% expecting the growth to continue in January.

Barry Williams, Chair of the CBI Panel said, ‘Customers have clearly held off spending through the Autumn and we’re only now seeing them start to hit the stores’.

‘Retailers are now gearing up for the crucial pre-Christmas week and are optimistic for the new year.’

An estimated 15 million people are expected to visit the shops today, spending an anticipated £2.6m a minute.


The Treasury has released figures on the take up of seed enterprise investment schemes.

The Seed Enterprise Investment Scheme (SEIS) was originally outlined in the 2011 Spring Budget, but did not formally start life until April 2012, after the usual smattering of re-announcements. It was designed to encourage investment in new, small start-up companies with no more than 25 employees.

In November the Treasury released a ‘news story’ (aka press release) explaining how the scheme was working. It revealed that over 1,100 companies had raised money through the SEIS, with the average amount invested of £72,000 – less than half the maximum permitted of £150,000. That meant total capital raised was about £82m, compared with £525m provided by the main Enterprise Investment Scheme (EIS) in 2010/11, the most recent year for which HMRC have published data.

At the same time as the Treasury was highlighting its numbers, HMRC issued some research they had commissioned into the early months of the scheme. Predictably this reported that “The main aims of investors for participating in SEIS were to take advantage of the front end tax relief… and the Capital Gains Tax (CGT) exemptions from the likely gains.” More surprising was the fact that those putting money into SEIS “were generally individuals who made relatively few investments (rather than business angels).”

This does sound eerily like the tax tail wagging the investment dog. By their nature SEIS companies are very high risk – as the HMRC report shows, many enterprises resort to SEIS because funds are unavailable from traditional sources. If you are tempted by the tax reliefs SEIS offer, do take advice before committing any money. There is a role for small companies in well-diversified portfolio, but SEIS companies are at the nano-sized end of small and may not be the right route to choose.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.

HMRC ‘is tougher on small businesses’, report suggests

20 Dec 2013

Margaret Hodge, the chair of the Public Accounts Committee, has said that HM Revenue & Customs (HMRC) ‘seems to lose its nerve’ when pursuing multinationals for tax that they owe.

A report carried out by the committee stated that, ‘the lack of prosecutions against multinational corporations seems at odds with HMRC’s stance on pursuing tax debt from small and medium-sized businesses in the UK’.

It also reported that HMRC failed to use all sanctions available to them, in order to robustly pursue all unpaid tax and has not proven to be on the side of people who pay their tax bills in full.

HMRC strongly disagreed with the comments. A spokesperson said, ‘HMRC seeks to collect the tax that is due from all taxpayers, so that everyone pays their fair share in accordance with the tax laws passed by Parliament’.

The 2012 Autumn Statement estimated a total of £3.12bn in unpaid tax would be recuperated from Swiss bank accounts in 2013/14, although only £440m has been claimed back so far.

Small businesses ‘must plan now’ for auto-enrolment

19 Dec 2013

Small businesses are being urged to take steps now to ensure that they are fully prepared for the introduction of the new pensions auto-enrolment system.

The new rules, which are being phased in over a number of years, require employers to automatically enrol all eligible members of staff into a workplace pension scheme, and to pay a minimum contribution into the fund.

However, the Chartered Institute of Personnel and Development (CIPD) has warned that many small firms are likely to face challenges when implementing the new system, due to limited resources and a lack of expertise.

A survey conducted by the organisation has suggested that while many larger firms have successfully implemented auto-enrolment since its launch in 2012, a significant proportion of small and medium-sized businesses are concerned about the costs and potential complications involved in adopting the scheme.

More than a quarter of SMEs are expecting to reduce pay growth, while a fifth are anticipating the need to freeze pay, in order to absorb the additional costs. Nearly a quarter of firms believe there may be an impact on other aspects of pay, including bonuses and overtime.

Charles Cotton of the CIPD commented, ‘While large companies tend to have long established traditions of paying in to employee pensions, for many SMEs this is their first foray into the world of pensions. They are unlikely to have access to the same levels of expertise or support networks as their larger counterparts and, as our survey reveals, many fear that it could be a costly exercise for their business’.

‘However, with early planning and preparation SMEs can overcome any challenges and realise the opportunity that auto-enrolment offers,’ he added.

Green light for new plastic banknote

18 Dec 2013

New plastic banknotes will enter circulation from 2016, signalling the beginning of the end for the UK’s traditional paper notes, the Bank of England is expected to confirm.

The Central Bank has been consulting on plans to switch to polymer notes since the summer, and its findings are due to be published later today.

It is believed that the new notes will be introduced one denomination at a time, starting with the £5 note featuring Sir Winston Churchill in 2016. This could be followed by the £10 note, probably in 2017, on which Jane Austen will replace the face of Charles Darwin.

The notes will continue to feature the Queen and retain their current colouring.

As well as reducing the impact on the environment, the Bank of England believes that the new polymer notes would be more difficult to replicate, thus reducing the number of counterfeits in circulation.

Experts at Threadneedle Street also claim the notes will be more hygienic and hard-wearing, with the ability to be wiped clean and survive a hot wash.

The plans are being championed by the Governor of the Bank of England, Mark Carney, who launched a consultation on the idea shortly after taking up his post in the summer.

Plastic banknotes are already being rolled out in Carney’s native home of Canada, while Australia has been using the notes for more than two decades.