Several large multinational corporations, including Hewlett Packard, American Express and Pfizer, are facing criticism for not increasing the pensions of UK employees who accrued benefits before 1997.

Thousands of former employees are reliant on UK companies granting discretionary increases to keep pace with inflation. Some multinational companies have repeatedly chosen not to provide these discretionary increases, even while making substantial profits, causing a significant erosion in the real value of these pensions.

Which companies are being criticised for not increasing pre-1997 pensions?

Several multinational companies are under scrutiny for their failure to provide inflationary increases to pre-1997 pension payouts. These include Hewlett Packard (HP), American Express, Pfizer, and 3M. These companies are being criticised especially as they are seen to be profitable enough to afford these increases.

What are the consequences for pensioners when companies don’t increase their pre-1997 payouts?

The consequences can be severe for pensioners. With inflation rising and no corresponding increases to their pensions, the real value of their pensions decreases significantly over time. In practice, this means they have less purchasing power and face financial uncertainty in retirement. Some pensioners have seen the buying power of their pensions drop by 20% in just five years. They may be forced to cut back on essentials, which contrasts greatly with the pension plans they were initially promised.

25% of all benefits accrued before 1997 are not protected

Figures from the Pension Protection Fund indicate that approximately one in four pre-1997 pension schemes do not have any mandatory rules to increase payouts in line with inflation. This demonstrates that it is a considerable problem affecting many pensioners, and it is not an isolated or minor issue.

What are the options for those with UK company pensions who want to take control of their pension pots?

Transferring to a Self-Invested Personal Pension (SIPP): Transferring a company DB scheme to a SIPP is a complex decision that requires assistance from a UK qualified financial advisor. It means exchanging the guaranteed income of a DB scheme for the control, growth and flexibility of a SIPP. It is especially applicable to those living overseas who may prefer the ease of access, currency variation and potential tax benefits of a SIPP.

Investment returns vs. Inflation: Generally, with a smart investment portfolio, diversified and tailored to your risk profile, investments in a SIPP outpace the sometimes mandatory inflationary increases from defined benefit company pensions.

What’s the UK Government doing?

The government’s Department for Work and Pensions states that their priority is to ensure companies meet their pension promises and that they are working with the Pension Regulator to identify issues. However, they also need to balance this with ensuring pension schemes don’t become unaffordable.

The Pensions Regulator clarifies that minimum indexation requirements are set by legislation but that discretion in this area depends on each scheme’s rules. They indicate that any new legislation would be a matter for the government to introduce. Both organisations seem to acknowledge the issue but avoid giving a firm position on fixing it, leaving the situation still needing resolution.

Standard Life research¹ reveals that 24% of people aged 55 and over have never checked their pension pots but, suggesting a positive trend towards proactive financial planning, over half of adults have checked in the last year.

British expats have been spotted trying to locate old UK pension documents.

A lack of awareness and understanding are key reasons cited for this significant percentage of policy holders. While online portals and statements are common methods for checking pensions, many people believe checking is unnecessary or too complex.

Those who have not checked their pensions in the last two years attribute this to:

• Thinking it wasn’t necessary (23%).
• Simply not having thought about it (17%).
• Not knowing how to check (12%).

Why is it important to regularly check your pension?

Because it is crucial for proactive financial planning. It allows you to understand your current savings situation, assess whether your contributions are adequate, and make informed decisions about your investment strategy.

Regular reviews allow you to make adjustments, whether that means increasing contributions or changing the types of investments within your plan, to better align with your retirement goals.

The Pension Check can help you take control of your pension pots, and create future wealth for you and your loved ones.

Get in touch with a UK qualified advisor.

1. https://www.standardlife.co.uk/about/press-releases/one-in-four-over-55s-have-never-checked-their-pension ↩︎

The government scheme, allowing anyone who’s worked in the UK to purchase up to 18 missing NI qualifying years, will expire in April 2025.

Buying back these years can help some people add up to £79,300 to their State Pension across their retirement.

If you changed jobs, lived overseas, or were otherwise not contributing to National Insurance through a UK employer from 2006 onwards, you are running out of time to fill in the gaps.

HMRC have stated on their website that “You have until 5 April 2025 to pay voluntary contributions to make up for gaps between tax years April 2006 and April 2016 if you’re eligible.”

Money Saving Expert’s Martin Lewis on X

It’s a lengthy process even for those living in the UK, which is why we offer assistance for people living anywhere from UK qualified financial advisors. The table below shows how much you could add to your UK State Pension income per week, per year and across a 20 year retirement by paying back up to 18 years.

Read more about the UK State Pension here

Our Pension Check service helps you review your NI record for any missing years, and get them back for the lowest cost possible.

Send us your contact info below and we’ll get in touch.

From April 2027, significant changes to the UK Inheritance Tax (IHT) concerning SIPPs will come into effect, as announced by the Chancellor in the recent Autumn Budget. Most SIPP funds will be included in estate values, potentially leading to 40% IHT on estates exceeding £325,000, plus additional income tax if the deceased was over 75.

The UK government anticipates increased IHT revenue as a result.

Here are the key changes:

● Inclusion of Unused Pension Funds in Estate Value: Most unused funds and death benefits in an inherited pension, including SIPPs, will be included in the value of a person’s estate for Inheritance Tax purposes. This means that large pension funds could push estates over the tax-free threshold, leading to significant tax liabilities for beneficiaries.

● Potential Double Taxation: Applying inheritance tax to SIPP pensions could lead to ‘double taxation’. Beneficiaries would have to pay 40% Inheritance Tax on any estate exceeding £325,000 and also income tax on any lump sums or income they receive from the unused pension if the deceased passed away after the age of 75. For example, on a £100 pension pot, a 40% Inheritance Tax would reduce it to £60, and an additional 45% income tax (highest tax bracket) would further reduce it.

● Tax-Free Allowance Remains Unchanged: The estate’s tax-free allowance, known as the nil-rate band (NRB), will stay at £325,000 until at least 2030. This doubles to £650,000 for married couples or civil partnerships.

● Consultation Ongoing: The exact details of how these changes will work are still being determined through a consultation process running until January 2025.

It’s crucial to note that these changes could significantly impact beneficiaries of SIPPs. It is advisable to stay updated on the outcomes of the consultation and consider potential estate planning strategies to mitigate the impact of these changes.

A 100-year-old World War II veteran, Anne Puckridge, living in Canada, is campaigning against the UK government’s policy of freezing the state pensions of British citizens living overseas. This policy affects over 453,000 pensioners, denying them annual increases applied to those in the UK.

Despite a meeting with the Pensions Minister, Ms Puckridge remains disheartened, believing the government is unwilling to change its stance. The government defends the policy citing cost and potential legal challenges, while campaigners argue for fairness and point to similar agreements with other countries. International diplomatic pressure from countries like Canada and Australia further highlights the policy’s controversial nature.

What countries have pension uprating agreements with the UK?

The UK has pension uprating agreements with EU countries and the United States, among others. These agreements ensure that British pensioners living in these countries continue to receive annual increases to their state pensions, in line with the amount received by UK residents.

However, several countries, including Thailand, Australia, Canada, and Vietnam, do not have such agreements with the UK. As a result, British pensioners living in these countries have their pensions frozen at the level they were receiving when they left the UK. This means they do not benefit from the annual increases provided by the triple lock system, which ensures that UK state pensions rise each year by the highest of 2.5%, inflation, or earnings growth.

An un-named UK pension scheme’s decision to invest 3% of its assets in Bitcoin has sparked controversy. Experts are sharply divided, with some praising the diversification and potential for high returns, while others condemn it as deeply irresponsible and akin to gambling with retirees’ funds, citing Bitcoin’s volatility and lack of intrinsic value.

The debate centres on the inherent risks versus potential rewards of this unconventional investment strategy for a Defined Benefit (company pension) scheme. The Financial Conduct Authority’s warnings against crypto investments add to the concerns. Ultimately, the long-term consequences for the pension fund remain uncertain.

The fund managers obviously see some value investing a small percentage, given Bitcoin’s recent rallies due to Donald Trump’s reelection and Elon Musk’s subsequent government advisory role. Musk’s long online history of influencing the value of various cryptocurrencies can be found on his X app.

For our readers with Defined Benefit pension schemes in the UK, the Pension Check recommends:

● Review your current pension arrangements: Understand how your funds are being managed and the level of risk appropriate to your situation.

● Assess your risk tolerance: Determine how comfortable you are with the potential for volatility and loss in your pension investments.

● Explore other options: Research these alternatives to see if they offer a better fit for your investment preferences and financial circumstances.

It’s crucial to consult with a qualified financial advisor specializing in UK pensions and international taxation. They can provide personalized advice based on your individual situation, helping you make informed decisions about your pension and ensure you comply with relevant regulations.

Currently, unspent UK pension pots can be passed on tax-free, but from April 2027, most unused pension funds and death benefits will be included in the value of that person’s estate, which then may be subject to Inheritance Tax.

These changes have been introduced in the Autumn Budget 2024 and are part of the UK government’s aim to ‘deliver a fairer and less economically distorted tax treatment of inherited assets’.

Case Study

Let’s consider someone living overseas who still owns assets in the UK. At the time of their death at age 73, their UK-based estate consists of the following:

• Savings worth £50,000
• A home in the UK, being passed to their child, worth £400,000
• A defined contribution pension pot with £100,000 in it, with their child named as the beneficiary.

This gives a total UK estate value of £550,000.

Under Current Rules (pre-April 2027):

No Inheritance Tax (IHT) would be due on the estate. The pension could be inherited tax-free, and the remaining £450,000 (savings + home) falls within the individual’s £500,000 IHT allowance (£325,000 basic allowance plus the £175,000 residence nil-rate band for passing on a home to direct descendants).

Under the New Rules (effective April 2027):

The inclusion of pensions in the value of an estate means the full £550,000 is now assessed for IHT. While the total allowance remains £500,000, the additional £50,000 above the threshold would be subject to IHT at 40%, resulting in a tax bill of £20,000.

This highlights the significant impact of the rule change on estates, particularly for those overseas who may be unaware of how UK pension assets are treated under evolving tax laws.

Aviva Investors, a major UK pension fund, has lost over £350 million on poor investments in three incinerator power plants. These plants, located in Hull, Boston, and Barry, failed to meet energy production targets and are now facing administration. Critics argue that incinerators are environmentally damaging, contributing to greenhouse gas emissions and hindering recycling efforts. The losses have drawn criticism from shareholders and environmental groups, who advocate for reducing waste production and phasing out incinerators. The situation highlights the financial and environmental risks associated with energy-from-waste projects.

Pension Check tip: If you have UK pensions, you may want to take control of your investments. Inflation, currency fluctuation and bad investments can affect benefits you will receive in retirement.