It’s not only small business owners who are going to have to keep on working past normal retirement age, according to the Pensions Policy Institute.

According to the Institute’s research, millions of us will still be working after our 75th birthday because we have not been making adequate financial provisions for our retirement. A whopping 45% of people aged over 50, and that includes contractors, will have to carry on working for 11 years longer than they had originally hoped in order to have a comfortable retirement.

Life expectancy has increased over the last three decades and although the government has raised the normal retirement age slightly, this in no way compensates for the fact that we are living longer.

Joanne Segars, the National Association of Pension Funds’ chief executive, said millions of Brits are in for a rude awakening when they realise they haven’t enough money to retire. People who don’t want to see their living standards fall either need to save more or work longer.

The pensions gap in the UK is the largest in Europe and Aviva says that we should be putting an extra £10,300 into our pensions each year if that gap is going to close completely. But can anybody really afford to put away £200 a week into their pension fund when some people don’t even earn that much over the entire year?

The problem is made worse by falling annuity rates. A pension fund that guaranteed a lifetime income of £15,640 at the beginning of the 1990s is worth just £5,800 a year now.

You’re never too young to start saving for your retirement! The sooner you start, the larger a pot you’ll have to draw on when you do eventually do decide to sit back and take it easy.

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New research from the Clydesdale and Yorkshire banks shows that an increasing number of older Brits are foregoing retirement and setting up a business instead.

The study found that more than 25% of small businesses in the UK were set up by recent retired people or those who had been made redundant. In fact in excess of one million “older-preneurs” have taken the opportunity to set up their own limited company after redundancy or retirement.

Clydesdale and Yorkshire Banks’ director of small business banking, Gary Lumby, said a lot of people realise that there’s more to life than being employed by someone else and it’s an added bonus if you can form a business from something you love doing.

Redundancy can be a difficult time but for some it acts as a spur to starting up on their own, he added.
In the second quarter of 2011, GDP grew by a mere 0.2%, compared to 0.5% in Q1. The Office for National Statistics blames one-off factors like the wedding of Prince William and Kate Middleton and warm April weather for this sluggish growth. However, George Osborne was quick to point out that the economy is still growing and creating jobs.

We’re also seeing a large increase in the number of new start-ups. According to Wilkins Kennedy, 396,000 new businesses have started up in the past year, compared to 362,000 last year and 330,000 in 2008/09.

Kevin Walmsley, a partner at the accountancy firm, said that opportunities are presented during each recession and despite the economic downturn, the UK has entrepreneurs who still have enough confidence in their business model to start up their own business.

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The Office for Budget Responsibility says that tougher austerity measures and higher taxes are needed if Britain is to achieve long term fiscal sustainability.

The UK has an ageing population that is putting pressure on the long term sustainability of public finances, according to a report published earlier this month from the OBR. Over the next fifty years, the number of people in retirement will increase sharply, whilst the number of working age individuals will decline. Currently we have 4 people working to support one pensioner, but that ratio will soon become 2:1.

Analysts predict that the UK population will reach 75 million by 2060, putting additional pressures on the cost of pensions and health care. Without substantial policy changes, the OBR warns that UK net debt levels will rise above 100% by 2060.

In order to bring the debt level down to 40%, the government will need to find an extra £22 billion. The key to sustainable public finances lies with public health but unless NHS productivity improves the UK’s debt levels could rise dramatically.

The OBR report also showed the financial services industry contributed approximately £40 billion of GDP in tax, in 2007. However, it is thought the sector’s contribution will drop to about £34.6 billion if tax rates remain unchanged. The OBR therefore expects the UK economy will rely less on financial services in future years.

The British Chamber of Commerce’s chief economist, David Kern, said the report suggests that we are unlikely to see a return to the level of public sector spending witnessed before the recession. The UK has to adapt its ambitions to more limited resources and acknowledge that the private sector is responsible for creating wealth through greater productivity and increased growth.

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Umbrella contractors will be interested to learn that Maria Miller, the Parliamentary Under Secretary of State for Work and Pensions, has said that flexible working should be thought of as a normal way of working.

The MP for Basingstoke said that businesses have dismissed flexible working as burdensome for too long. UK firms needs to move away from this mentality and consider flexible working as the norm rather than the exception. We live in a world where fathers want to play a bigger role in family life, people work past the normal retirement age and an increasing number of disabled people want to have a job. Most people will consider flexible working at some stage during their working life.

Fathers in both the private and public sector are definitely benefiting from flexible working, according to research findings released by Working Families.

The study discovered that fathers who have adopted a flexible working regime feel less stressed and have a greater sense of wellbeing than their counterparts who have a strict full-time working hours regime.

Michelle Chance from the law firm Kingsley Napley, says that gender issues in the workplace should equalise as more fathers opt for flexible working. However, she has real concerns that the coalition’s recent plan to extend the right to ask for flexible working to all employees in a business will have an adverse affect on working parents’ rights. Employers will face an administrative nightmare if they are to balance the competing rights of employees and avoid costly litigation.

Last month, the government launched a consultation into the introduction of flexible parental leave and extending the right to request flexible working.

John Walker, the national chairman of the FSB, welcomes the decision to reform parental leave but points out small businesses find it extremely complicated to administer flexible working and the rules need to be adapted to suit the needs of each individual firm.

It will also be burdensome for very small firms if they have to allow couples to take chunks of leave rather than the current single block. The FSB would like to see a situation whereby staff tell their employers about their leave intentions from the outset so businesses have ample time to prepare.

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There is a substantial gap between the anticipated incomes of men and women in retirement, according to the Class of 2011 study from Prudential. Men expect an average income of £19,400 per year when they retire, whilst women anticipate just £12,200.

The Prudential questioned people who were planning to retire in 2011 and discovered a retirement income gender gap of £6,500. However, the gap has closed slightly since last year. There are some regional disparities, with women in the South West expecting to retire with an income £11,700 less than their male counterparts, while in the South East, anticipated retirement incomes are about equal.

The study also discovered that 28% of the women intending to retire this year have no pension provision other than that provided by the state. Only 10% of men are in the same position.

Umbrella company contractors are being warned that the proposed flat-rate pension of around £140 per week will not be sufficient to live on.

Standard Life conducted a survey that found 37% of respondents thought they could survive adequately on £140 a week. However, John Lawson, Standard Life’s head of pensions, pointed out that the Joseph Rowntree Foundation had determined the minimum acceptable level of retirement income was £200 a week.

Currently, about 10% of British pensioners live in poverty and this is mainly because they do not claim the state benefits they are entitled to. It is still unclear which benefits will be scrapped under the new system but the government has said the poor will not be penalised.

Steve Webb, the pensions minister, says the proposed reforms will put an end to the inequalities in the present system. The next generation must take more responsibility for their retirement as life expectancy increases, final salary schemes decline and annuity rates decrease, he added.

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Employers could have problems getting to grips with the new overly complex regulations regarding employees’ tax avoidance schemes that have been detailed in the Finance Bill, according to tax advisers.

As from yesterday, 6th April, new disguised remuneration legislation came into force. The government hopes to generate £750m per year by clamping down on Employee Benefit Trusts and Employer Funded Retirement Benefit Schemes; both of which are seen as tax avoidance schemes.

The details presented in the Finance Bill run to 59 pages compared to the 25 page original draft which required amendment.

One of the associate partners at Deloitte, Mark Groom, said the coalition had “created a monster”. It’s hard to read and employers will struggle to understand and comply with it. He also raised concerns about the cost of compliance.

Although HMRC has produced a FAQs factsheet to outline the scope of the new legislation, KPMG’s head of employment tax, Jayne Vaughan, says this has clarified some points but added confusion to others. She said HMRC will be inundated with queries on this especially as employers have had next to no time to digest the document before the changes come into force.

Taxpayers are also warned that tougher penalties will now be imposed for people found guilty of hiding money in offshore accounts. Penalties of up to 200% will be levied on anyone caught evading tax in this manner.

HMRC explained that the higher penalties will be imposed on those undertaking tax evasion who under declare income and gains from countries that do not have an automatic tax information sharing agreement with the UK.

The permanent secretary for tax at the Revenue, Dave Hartnett, said the department had made significant progress in tackling international tax evasion and the increased fines should act as a good deterrent against offshore non-compliance.

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Employee benefit trusts and employment finance retirement benefits schemes are the latest to be targeted in proposed Treasury regulations.

The Finance Bill 2011 contains a document concerning ‘disguised remuneration’ which aims to tackle the practice of using trusts and other means to defer, reduce or avoid tax liabilities. As from April 2011, these benefits will attract income tax and NICs.

Standard Life says that new anti-forestalling rules, which came into effect on December 9th, will stop employers making any new payments to these schemes. John Lawson, the head of pensions policy at Standard Life, said that people who already have funds in EBTs or EFRBS could be subject to admin charges of more than £5,000 which will diminish the value of their fund.

High earners had been using EFRB schemes as an additional way to fund their retirement since pension contributions were capped. If these contributions were seen to be genuine and constituted a salary sacrifice from the employee, they did not attract PAYE deductions. The new legislation will bring these schemes into line with government approved pension schemes.

As from the start of the new tax year, any third party provision, such as a reward or loan, made to an employee in connection with their employment, will be taxable.

HMRC expects to receive an additional £500 million a year as a result of the new legislation. It is as yet unclear whether these new rules might be applied retrospectively and Treasury clarification is expected over the coming weeks.

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Umbrella company contractors should start considering their retirement now. Recent research, carried out by Defaqto, shows that 44% of adults in the UK are not confident that they will be able to sustain a reasonable standard of living once they retire. That’s a rise from 38% last year.

Only 11% of the survey’s respondents now believe their retirement income will be sufficient to support a comfortable lifestyle, whereas in 2009, 16% were confident.

Defaqto said that people are starting to recognise that they will have to depend on their own savings as they get older. 30% of the adults surveyed now think that a personal pension will provide the majority of their retirement income. Last year, only 17% felt that way. Despite this, 61% still think they will need to depend on the state pension to survive. Commenting on the results, Matthew Ward from Defaqto said it was important for everybody to plan for their retirement as soon as possible.

Another poll, this time by YouGov, has discovered that only 22% of adults understand exactly how large a pension pot they need.

72% of people aged between 18 and 24 are completely in the dark when it comes to financing their retirement and maybe surprisingly, so are 29% of the over 55s. Whilst the people in the over 55 age bracket are unlikely to be able to build a substantial pension pot at such a late stage, the same cannot be said for younger freelance workers. Now is the time to start saving to ensure retirement expectations are met.

Nick Cann, the chief executive of the Institute of Financial Planning, agreed with Ward’s comments saying it is never too early to begin planning for future financial goals.

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The auto-enrolment pension scheme will cost SMEs and umbrella companies an average of £2,550, but the true cost of administering it could be horrendous, warns the FSB.

As from 2017, all businesses will be required to pay 3% of each employee’s salary into a pension fund. So, the cost for a company with four employees, all earning £25,500, would be £2,550.

The FSB’s policy chairman, Mike Cherry, said that whilst it is imperative that everyone gets a chance to save for their retirement, the automatic enrolment scheme is going to be very costly for the smallest businesses.

The coalition has implemented measures to make it easier for micro firms to comply with the enrolment procedures, but it will still cost these small firms a minimum of £2,550 each year to make the pensions contributions.

According to the government, it will cost £46 per employee for a micro firm to administer the scheme. The FSB on the other hand believes it will cost much more and has called on the government to publish an impact assessment as soon as possible. The Federation wanted the government to exempt micro firms completely from the pensions legislation and it is now concerned that the Pensions Regulator will come down hard on the smallest businesses.

Contractors who work through their own limited company will not have to join the state run pension scheme. Umbrella companies on the other hand will have to, but contractors employed by them will have the option of opting out. Umbrellas will have until August 2014 to implement a scheme for their contractor clients.

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The IoD is calling on the coalition to reduce the excessive burden of red tape that is bogging down UK enterprises and umbrella companies.

Although the government promised to reduce the regulatory constraints of employment law, the Institute says these have actually increased since the coalition came into power. Spokesman Alistair Tebbit said that employment law has been increasing gradually over the past 10 to 15 years, an activity that was encouraged by the Labour government. The current government appears to be doing exactly the same even though they pledged the reverse in pre-election campaigning.

The IoD made its comments after David Cameron appointed Lord Young as his new enterprise adviser. Tebbit said Lord Young would need a wide scope as the red tape surrounding employment law affects all businesses, not just a particular sector.

Proposals that are currently under consideration include abolishing the default age of retirement, extending paternal leave and encouraging flexible working, but far from reducing the regulatory burden, these would cause firms additional problems, said Tebbit.

The FSB last month reported that EU regulation costs businesses £107.6 billion per year – 3.5% of the annual European Union GDP. 1.7 million businesses fail in the EU every year and more than half of them say the regulatory burden was a significant factor in their failure.

Earlier this year, Nick Clegg asked the public to visit the Your Freedom website and say which laws they would like to see changed. 46,000 ideas were submitted but Clegg has apparently given up and passed the ideas over to the Home Office which will propose a smaller civil liberties bill. Ironically, Clegg passed it over due to too much detail. Isn’t that exactly what businesses are currently complaining about?

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A new survey by Just Retirement has found that workers who have retired or are nearing retirement would like to receive more guidance on taxation and other issues. This can include those working through umbrella companies.

33% of retirees would like to get more information about their entitlement to benefits and pensioners on a whole are confused about taxation.

Head of research, Nigel Barlow, said that retirees face varied and complex issues and it is therefore hardly surprising that they are very interested in receiving further guidance. Many pensioners are missing out on benefits they are entitled to because the system is difficult to navigate, he added.

The group also noted that 63% of their customers research online to find the best annuity deal.

Meanwhile research from retirement specialist LV= has discovered that around 1.2 million working people and freelancers over the age of 50 may cash in their home to help fund their retirement. In fact a new acronym has sprung up for this group of people – HIPpies (Home is Pension).

Just 19% of the over 50s feel their current finances are on track to adequately fund their retirement and 41% think they may need to delay retiring for financial reasons.

19% plan on delaying retirement because an average of £21,706 has been wiped off the value of their home due to the volatility in the housing market. However, 23% still intend to use home equity as a means of funding retirement and a further 9% will take advice on doing so prior to retirement.

44% of the over 50 age group who work still have mortgage debt and 34% of the over 60s are in the same position.

The picture doesn’t look any brighter for the under 50s either. Nearly 50% of them think they are not proactively planning for retirement and although many are in company pension schemes, they would like to see their employer provide pension advice.

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Last week, the Bank of England controversially hinted that we should be spending rather than saving.

This is bound to leave a lot of people, including umbrella company contractors, feeling rather confused, especially when the financial experts have been telling us to save, save, save for our retirement.

The low base rate of 0.5% has meant that savings accounts receive little to no interest and a lot of people have had to dip into their capital to make ends meet during the recession. So why are we are being told to spend more?

Comments from the Deputy Governor of the Bank of England will no doubt cause outrage amongst older savers. He said that they could afford to suffer the current low returns on their savings as a lot of them have benefited from previous huge property price increases. He added that people should not expect to live off the interest generated by their savings.

In related news, research undertaken by uSwitch has discovered that almost one in four people have had charges levied on them because they did not understand the terms and conditions of a financial product they had signed up to. This financial ignorance has already cost Briton’s around £250 million. On top of which, 71% say their lack of financial knowledge is the reason they got into arrears.

It would appear that as the nation gets further in debt, our knowledge of all things financial decreases. Ann Robinson, a director at uSwitch, has called on the coalition to make financial education a national school curriculum subject. If it does, what advice will our young people get? Spend or save? That’s the million dollar question at the moment!

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