Pensions Administration is a new unit of the CISI’s globally recognised Investment Operations Certificate. Dave Sadler, a panel member involved in developing the unit, explains its value
What does the unit involve?
It looks at state benefits, different types of pension schemes, types of policies used by schemes and the investments used by schemes to secure members’ retirement. It also covers the tax rules for pensions, trustees’ responsibilities and HM Revenue & Customs requirements that apply to scheme administrators.
Who is it aimed at?
Those who have been working in a pensions administration role for at least a year. This includes members of an employer’s pensions administration team, employees of firms providing pension administration services to clients and those working for pension providers.
Why has it been developed?
Pensions is a heavily regulated environment so it is key to understand how the different rules and regulations apply to your daily duties. A pension is effectively a pool of nvestments which has particular tax advantages applying to it. The rules that must be followed to maintain the tax advantages of the pension are as important as the investment choices and regulation of those investments.
What is your verdict on the radical changes to the pension market?
Although the 2015 pension changes provide much greater flexibility, with that comes greater responsibility for the individual. If they take large amounts from their pension pots, they need to ensure that they still have enough money to provide for their retirement.
Individuals generally will not know what their life expectancy is and therefore how long their pension pot might need to last. Similarly, taking too much at once or at the wrong time could lead to large and unexpected tax bills. These potential complications are one of the reasons the Government has also introduced a free independent guidance service for those with defined contribution pensions; the intention is that this will help to prevent people making the wrong decision.
As well as changes to retirement benefits, the taxation of death benefits from pensions has changed, so unused pension benefits can be passed on to a beneficiary, and in a lot of cases, if an individual dies before age 75, the benefits can be paid tax-free, irrespective of the format in which they are paid.
The simple fact is that roughly half of those retiring now have less than £20,000 in their
pension pot, which is not enough to provide them with any decent level of benefits during the average period of 23 years spent in retirement.
We can expect further changes to the pension tax rules in the future to deal with unexpected issues and changes in people’s behaviour.
Dave Sadler is a senior research and project consultant at Aviva, specialising in pensions tax law. Further information: cisi.org/ioc
The original version of this article was published in the June 2015 print edition of the Review