Welcome to the August 2015 Newsletter from Easterbrook Eaton Limited
This month saw Chancellor George Osborne deliver his Summer Budget, during which he unveiled a raft of tax, business and welfare changes. Many of the headline measures have sparked fierce debate in the subsequent weeks, but concerns have also been raised over the proposed new apprenticeship levy, with the Confederation of British Industry (CBI) warning that the measure may fall short of solving the skills shortage facing many firms.
Meanwhile, a new study suggests that take up of annuities has fallen in recent months, with more people favouring income drawdown. The findings come in the wake of radical changes to the pension rules, which came into effect in April 2015.
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New apprenticeship levy 'may not solve skills shortage', warns CBI
The proposed apprenticeship levy on big businesses has been met with criticism by business groups who say the measures will not be enough to solve the 'skills crisis'.
The levy was announced by the Chancellor in his Summer Budget on 8 July and is intended to help the Government keep its Budget promise of delivering three million more apprenticeships over the next five years.
However, the Confederation of British Industry (CBI) has warned that the plans will not meet the needs of businesses for highly skilled individuals.
In a recent CBI/Pearson Education and Skills survey, 68% of the companies questioned said they expect their need for staff with higher level skills to grow in the years ahead, while 55% reported that they are not confident there will be enough people available in the future with the necessary skills to fill their high-skilled jobs.
The survey also showed that in all parts of the UK, 40% of businesses have provided remedial training in basic skills for adult employees, with 31% having to organise remedial training for school-leavers and 22% providing remedial support for graduates.
Some 310 companies took part in the survey, which together employ around 1.2 million people in the UK.
Commenting, CBI Deputy Director, Katja Hall, said: 'The new levy announced in the Budget may guarantee funding for more apprenticeships, but it's unlikely to equate to higher quality or deliver the skills that industry needs. Levies on training already exist in the construction sector where two-thirds of employers are already reporting skills shortages.
She added: 'Employers have a critical role in upskilling the workforce, but part of the deal must be for real business control of apprenticeships to meet their needs on the ground.
Worryingly, it's those high-growth, high-value sectors with the most potential which are the ones under most pressure.'
Meanwhile, latest figures from the Office for National Statistics (ONS) have revealed that unemployment increased substantially in mid-2015, with thousands more individuals out of work between March and May.
Unemployment rose by 15,000 during this period, taking the total figure to 1.85 million nationally, while the number of benefits claimants rose by 7,000 to 804,200. It is the first rise in the unemployment total for two years.
Responding to the rise in joblessness, Employment Minister Priti Patel said: 'We have to look at the figures not just on the quarter but over the last year, where employment actually rose by over a quarter of a million, so this is also a reflection of the strength of our economy, the fact that our economic recovery is well on track'.
The Government was also keen to point out that over the second quarter of 2015, total pay including bonuses grew by 3.2% compared to the previous quarter. While this fell short of the ONS predictions of 3.3%, it was the fastest improvement in real wages since before the financial crisis.
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Annuities take up falls as pension freedoms prove popular
Figures from the Association of British Insurers (ABI) show that the over-55s are increasingly favouring pension income drawdown policies over annuities.
Its research shows that 53% of those buying a retirement income chose an income drawdown policy, while 46% opted for an annuity.
Three years ago, annuities made up 90% of the total policies purchased, but since the pension freedom reforms came into effect in April the demand for drawdown policies has increased significantly, despite some providers failing to offer customers the option to withdraw partial cash sums as the Government intended.
The ABI said that in the two months after 6 April, 65,000 people exercised their new right to withdraw cash - taking out a total of more than £1bn.
It seems that the general trend is for those with smaller pension pots to cash them out, while those with larger pots are using them to buy a regular income. The average cash pot taken was worth £15,500 - however, the average annuity purchase was for £55,750, while the average drawdown policy was for £69,900.
ABI director Dr Yvonne Braun said: 'Tens of thousands of people are successfully accessing the pension freedoms as intended, and on the whole, the industry has risen to the challenge of giving customers what they want'.
April 2015 saw the most radical changes to the pension rules for almost a generation. The reforms change the way in which savers can access and manage their pension pot, and include giving people access to their entire pension pot from age 55 onwards.
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