Introduction – A World of Change For Pensions
The structure of pension provision and retirement planning has changed enormously over the past 20-30 years, and there are likely to be more changes affecting pensions in the upcoming 2012 Budget and through the rest of this decade.
Essentially, from a position where most employees 30 years ago were part of an employer-based Defined Benefit scheme – where your pension was determined purely by how long you had worked for a company and the salary you retired at – we have moved steadily to the point where Defined Contribution schemes dominate the pension landscape. Few of us can simply look forward to having a pension based on ‘final salary’.
Of course, the self-employed worker has always operated on this basis. Now we all have to work out if the savings contributions we make through our working lives will give us sufficient income in retirement.
To a great extent in the employed sector, we have seen a shift away from corporate to individual responsibility for pensions – largely because the heavy cost of Defined Benefit schemes has become unsupportable for many employers, especially against a background of the poor investment performance of equity and bond markets. Increased longevity has also increased the cost to employers, and the pensions industry as a whole.
In the self-employed sector, increased longevity has resulted in the need to create ever larger pension ‘pots’ in order to maintain a good lifestyle for a longer period.
Added to this, the Government is also cutting back what it can provide for future state and public sector pensions – largely because the number of UK pensioners is forecast to grow by over 40% in the next 50 years while the working age population is expected to remain constant, making the ‘pay-as-you-go’ approach unworkable.
Gone are the days when we could leave our pension savings in the hands of trustees, investment managers and actuaries. Now most of us – even in parts of the public sector – have to consider whether the amount we, and our employers, contribute toward our pensions will be enough to give us a comfortable retirement.
We all also have to see more clearly exactly how we get a pension, and the fact that the process divides into two distinct stages – ‘the saving years’ and the ‘annuity’. The contributions made through the savings years will build up the ‘pension pot’ with which the annuity is bought.
The focus of PensionChecker is to maximise the pension pot and consolidate where there are a number of pension pots owned.
With Portability comes Responsibility!
The steady move away from Defined Benefit schemes also makes the issue of ‘portability of pensions’ of greater importance. With Defined Contribution, individual employees are getting greater control over their personal pension arrangements, and this looks likely to increase further.
A situation where individual personal plans will exist for everyone, independent of whoever you are working for during the savings years, is not far off – especially as the European Commission is pushing for greater harmonisation of pension provision and taxation rules. The aim is for all workers in the EU to have transferable savings and pension rights. That is only likely to be achievable under a Defined Contribution system.
‘Personal Pension Plans’ are already portable, in that they can be transferred between providers.
Pension providers differ greatly – in terms of plan structure and costs, and investment performance. The pension’s in-built charges can have a devastating effect on the size of your eventual pension pot, damaging its value and having a dire effect on the availability of a good annuity when you do eventually retire, As investment leader Terry Smith has pointed out (see our news pages), many savers will be severely disappointed with their pension pot when they retire because of high fees and inflation. Poor investment strategy can only make things worse.
PensionChecker can help you now to find a better provider and move your pension without incurring any ‘hidden extra’ charges.
PensionChecker will also ensure you keep all pension costs to a minimum.
Most people are failing to review their pensions often enough to keep up with changes in the law, or with changing investment risks.
Our Pension Review Service can provide a Comprehensive Review Plan, designed by our professionally qualified and fully-accredited team, aimed at improving the return on your investments (ROI), and minimising the costs embedded in your pension.
Our team is fully up-to-date on all the options available to you, and on the changing legislative landscape and how it impacts your savings options.
We can help you make the most of your pension plan in a rapidly changing environment.