Occupational Pensions - The Future?

Why is that considered a problem?

1. Firstly, because companies are paying less towards their employees’ pensions, the employee must pay more. And not enough are doing that. Actuaries calculate that the average Briton in the new schemes will have to carry on working until the age of 67   72* to afford the same retirement as someone on the traditional schemes. 
   (*An analysis by the Pensions Policy Institute shows that unless the younger half of the working population saves more for retirement they will be forced into an awkward choice: either they can retire at 65 and accept a dramatic cut in their income, or they must continue working for another seven years).
    
2. Secondly, while returns from the stock market have been mainly good during the last decade, apart from the last two years, this may not be the case in the longer term. Some investment experts predict long-term returns from the stock market will be worse during the next 30 years. That again means we will all have to save harder.

Why are companies making these changes?

1. Old-style pensions are no longer appropriate to modern life because most of us will change employers at least once.  Money-purchase schemes are more easily switched from employer to employer.
    
2. Because many of us are living longer, companies which have kept traditional schemes are having to put more money aside for pensions — which is very expensive.
    
3. New rules to blame?  the Government has introduced a new rule, called FRS17, which orders companies to come clean over the strength of their pension scheme instead of disguising it in the accounts and smoothing out any weaknesses over time. This hits profits and has prompted many companies to make the change before the new rule comes in.

Which companies have made these changes?

BT, Ernst & Young, Marks & Spencer, Iceland, Sainsbury’s, Legal & General, Lattice, Lloyds TSB and Barclays have all recently closed their traditional pension schemes. It means new employees must join the new ones.

They are far from being the first to do so. Last year, 21 British companies ditched their defined benefit pensions not only for new staff, but for existing employees too.

Why do I need a company pension scheme? Is the State Pension adequate?

At present the State Pension is well below living requirements and is means tested.  The value of the state pension has been eroded to the point where it can only provide the most basic of incomes. And, 20 years from now, it has been suggested, the state pension may no longer even exist.

So what is the Government doing about all this?

It has made matters worse. In 1997, Chancellor Gordon Brown removed a valuable tax break from company pension funds which cost them an extra £5billion a year.  He has also consistently refused to change the rule forcing people to buy an annuity, a type of insurance, when they retire.

These products give you a fixed payment every year depending on how much you have saved but are linked to interest rates.

Because interest rates are currently low, so are annuities, which makes it harder to get a decent income from them — even if you have saved a large chunk of money.

Calculate your pension payments - How much do you need to contribute to earn your desired pension value.

When you die, the insurance company keeps any money left over instead of passing it to your loved ones.  (Grand Theft!!!!)

What should I do if my employer changes their pension scheme to the new system?

It depends on what your employer does to the existing scheme. In some cases, employers are continuing them for existing staff, though not for new ones, in which case you will be OK. 
In other cases, employers are freezing contributions in the existing scheme — with the money put aside for you continuing to earn interest.  In those circumstances, you will probably be offered the chance to switch to an alternative money-purchase scheme and to switch your existing payments into it.

In most cases, experts say you should leave your money where it is, while beginning payments into your new pension scheme. Above all, though, try to save more towards your pension.

The message for us all, as far as our pensions goes, is that each individual must look after themselves!  However it is becoming even more obvious that future generations will need a basic pension buffer - We believe that it is imperative that the State Pension is retained.