Can you trust pensions?
on Nov 30 in Can't trust pensions tagged by Brian WoodPensions are getting a bad press at the moment as the impact of the pensions crisis begins to filter through into negative news about company pensions and personal pensions.
Does this mean that pensions products, whether company or personal, can’t be trusted? Not at all, it actually means that we need them more than ever, and we need to take care to get the most out of them. As we have said elsewhere, the pensions crisis has been caused mainly by longer life expectancy and lower investment returns, not by something inherently wrong with pension plans.
In fact, pension plans of whatever nature have a lot going for them. You still get tax relief on contributions and the growth in the fund, and these can accelerate your retirement savings quite significantly. And pensions are probably one of the most secure of financial products. Company pension schemes are kept separate from your employer so that if they go bust the scheme doesn’t go down with them (and there is a government-backed Pension Protection Fund as backup). Personal pensions usually come from insurance companies, whose regulation is so tight that we don’t know of any examples where a pension has yet failed to pay out.
That doesn’t mean you can completely drop your guard though – as someone once said “there is no free lunch”. Investment returns can vary enormously depending on the investment strategy adopted and the expense charges deducted by your pension company – so you do need to pay attention. That’s why we keep mentioning the importance of getting good professional advice when you are making big decisions about your retirement and pension.
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Do NOT I repeat do not rely on the PPF. I saved all my life for my pension. I had a good pension and retired early yet when the company I worked for went bust and my pension scheme fell into a PPF assessment I lost more than half of my pension in payment overnight and without warning. I am now 60 years old with no hope of retirement. I work 6 days a week 12 hours a day trying to rebuild a lost pension but the years left to me are too few to replace the massive pension loss. Why did this happen – because of the crazy rules of the PPF and its diabolical treatment of early retirees. When I retired the PPF was not even a glimmer in the eyes of those who created it. My pension was protected under law yet the intoduction of the PPF in 2005 changed everything and destroyed my pension plans and dreams. The PPF rules take no account of the financial state of your pension fund. Mine was well funded with over 1 billion in assets even today and is well able to pay all members much more than 50% of their pensions yet because of the PPF rules I am subject to actuarial reductions for early retirement ( a double whammy as) as well as a compensation cap that is not applied to all scheme members. 99.8% of PPF members do get 100% or 90% of their pension as compensation but if you are one of the 0.2% who are early retired or a long service employee then the PPF will destroy you. Angela Eagles knows all about this and refuses to do anything about it. The Chairman of the PPF said that we (the 0.2%) were an unintended consequence of a change in the law but he has no power to do anything. Only Parliament can change this unfair treatment of so few yet parliamnent in the form of Angela Eagles refuses to do anything for us. We are less than 100 people nationwide and the cost to correct this injsutice would be small but Angela Eagles will not budge. Angela Eagles should give the early retirees 90% too and scrap this unjust cap or she should apply the cap to everyone not just the few.
If applied to everyone it could be set at a higher level for the same cost. Some PPF members will be receiving six figure compensation whilst those who retired early on pensions of 30k to 40k have seen their pensions reduced to about 17k. Defferred members on propective pensions of 10k have seen them reduced to 9k whilst those above NRA continue to receive their full pensions. And do not forget all those bankers who thanks to being bailed out by the tax payer are now receiving their full pensions instead of joining the rest of us in the PPF.