pension bashing is flavour of the month, every personal finance programme, every article about them seems to focus on the problems. Newport financial expert Saran Allott-Davey urges closer inspection and says it is not all bad news.
COMPANY pensions:
FINAL salary schemes which guarantee you a proportion of your salary for every year in the scheme have always been viewed as the Rolls Royce of pensions. That was before Robert Maxwell; since then legislation makes fraud much less likely but has not been able to counter poor investment performance.
The huge majority of such schemes will continue to provide excellent value for pensioners.
Some schemes have run into funding problems where there is insufficient money in the pot to meet the schemes obligations, for example, ASW in South Wales. In this instance the current rules divide the pot so that existing retired workers must receive full benefits before any payments can be made to those not yet retired.
This is very hard on the people who are just off retirement and in the worse case scenario receive nothing and have no time to make up the loss.
New rules which come into force this April will ensure the pot is more fairly divided between all members, and increases obligations on the employer to make up shortfalls if they are solvent. There will also be a compensation scheme.
While this is no help to people already suffering due to scheme wind-ups, it will improve things going forwards and hopefully go some way to restoring faith in pensions.
Investment markets have generally had an excellent last twelve months so some schemes which were heading for trouble may now look healthier.
Personal pensions:
THE TAKE-UP of stakeholder schemes has been lower than expected and many employers set up schemes, but do not offer to pay a penny in so no one joins. They have, therefore, been declared a flop.
The good news is that the stakeholder model pension of low charges, total flexibility regarding premium payments, no penalties or hidden charges or setting up or exit costs have filtered through the whole industry. Most ordinary or stakeholder pensions, taken out over the last three years will be vastly better value than old-style pensions.
Many companies have reduced charges on the old-style plans saving clients huge amounts of money. This has largely gone unreported and unnoticed.
As most people pay into pensions monthly, they will have continued to buy shares via pension funds when the market was cheap - this should benefit them if the market gradually rises over the next few years.
It is gradually dawning on investors and the pension industry that to pay out a large sum of money as pension every year for 20 years or more, you need to pay a large amount in.
People are still reluctant to put aside a similar amount of money for retirement that they commit to holidays, hobbies, their social life. Until this is addressed the pension funding problem will not go away.
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