News: more pension schemes set to close

on Aug 17 in Is it my crisis? tagged by Brian Wood

BBC News has reported the latest Watson Wyatt survey which suggests that more final-salary schemes, many of whom have already closed to new members, are considering reducing future benefits for existing members: read the full article here.

As more and more employers react to the pensions crisis by reducing benefits, the continuing trend underlines the importance of taking responsibility for your own pension.  You can no longer afford to rely on someone else to make sure your retirement expectations will be met – not even if you are in a generous final salary scheme.

One Comment

  • j wood says:

    We have seen a huge shift from schemes where the employer took responsibility for investment and longevity (the final salary scheme) to schemes where the worker has to take on the responsibility for where they chose to invest their savings and what they do with it in retirement (the modern day money purchase scheme).

    The big shift is a result of this Goverment’s interventions with pensions (the Brown tax raid and the PPF to name 2). Employers have been given an opportunity to almost shirk (forever) their pension reponsibilities to their employees. Now, with the pending pension reforms we could actually see employers not just moving from the Gold Plated pensions to modern money purchase schemes; but moving to inadequate modern day money purchase schemes (Personal Accounts).

    We missed a huge trick here. The obvious middle ground road was a Cash Balance scheme. Picture this, an employee starts work and is given his pension pack. The pack explains that his employer will guarantee him a lump of money in retirement which he can use to provide an income for his family. The employee understands from day 1 what he’s getting in for, he knows that he doesnt have to make investment decisions and worry about whether they will turn out to be the correct ones. The skilled pension trustees will take care of it and if it doesnt work out the employer makes up the difference. What a relief! The cost of such a scheme is much less than the traditional final salary pension but the employer takes on the burden of investment. The benefit for the employer is that it a) costs less the conventional DB scheme and b) the risk of longevity is passed to the employee. To me, this was an obvious middle ground in which employers and employees would share the burden of retirement. Some how, morally, this sounds correct – however we now find ourselves in a very different situation.

    We’ve potentially missed this opportunity for good, employers have been given the excuse to move from one extreme to the other. There wont be a shift back the other way.

    Now, let’s say that employers decide to level down their pension provision as a result of the 2012 pension reforms (this will undoubtedly happen), and why not? In 2008 Mr employer was paying 30% into a final salary scheme and in 2012 it’s just 3% into a Qualifying Workplace Pension – big pat on the back for the FD! We now risk generations of workers being enrolled into inadequate schemes that they dont understand, building up enough savings to take them out of means testing but not enough to provide any quality life in retirement.

    You’re bang on, there’s too much cr4p and jargon in pensions (see above paragraphs) but the key to sorting this out is not through blind enrolment but through detailed education. Government backed finanical education programmes on TV after the 9 o’clock news once a week would be far more useful in the long term.

    It’s my opinion that the pension crisis is going to get a lot worse in years to come.

    Can’t wait to see the book.

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