/ Money

How well do you know your pension schemes?

retirement pot

I gave evidence in front of the Pension Schemes Bill Committee today, tackling one of the proposed new pieces of legislation to implement the pension reforms announced back in the Budget.

One of the big changes in the Bill is a plan to allow for the establishment of new “shared risk” or “Defined Ambition” pension schemes, which, if properly managed, could give people greater certainty about their potential income in retirement.

Sounds good, but do you know your collective scheme from your defined benefit or individual defined contribution scheme? And which is best for you?

Pensions complication and concerns

Our research shows that there is still a lot of uncertainty and low levels of trust in the pensions industry. Three in five of us are worried about the value of our pension and only 28% of people nearing retirement are confident they’ll have enough to live on in retirement.

All of which means that it’s critical the Government ensures that market works in the best interests of consumers, so people can make the most of their hard earned money. And that means making the whole system more understandable and consumer-friendly.

One of the things we’ll be calling for is for clear explanations of every type of scheme so people can understand the risks involved and what they can expect from each one. Regardless, one thing that should be consistent is that they should all be subject to strong governance, have low charges and provide value for money.

Getting guaranteed guidance

During the evidence session we reiterating our calls for high quality, personalised guidance to cover all the available options, and suggested that the Government keeps the service under regular review so it can take immediate action if it’s not up to scratch.

All these pension reforms means that there’s lots for politicians to think about. But what’s most important to you? Is it having better pension schemes full stop, is it getting good guidance on what to do with your pension, or is there something else that the Government should be thinking about?

Sophie Gilbert says:
24 October 2014

I paid into a final salary pension as recommended to me by an older and wiser colleague when I started work. When my employer decided to stop this final salary pension scheme and go for a stakeholder pension scheme instead, I started paying into that. I have since changed job and I now pay into my new employer’s pension scheme.

I haven’t a scoobie how much money I will get from my pensions when I retire, or indeed when I will retire. The goal post keeps changing. Providence bless you for trying, but I am not certain that anyone can make this simple and understandable for all of us. No-one has the same pension scheme, no-one pays the same amount into it for the same length of time, no-one retires at the same age, the market keeps changing, employers keep changing schemes as it suits them, not workers, and so on and so forth. Or am I showing my ignorance up?

renniemac says:
26 October 2014

Sophie your not showing ignorance, there are many like yourself who don’t understand the system. there needs to be better clarity as stated by Which. also I believe the pensions should be protected to stop future Governments from pillaging them when they need extra capital.
The pension system as it stands is a game of Russian roulette, whereby no-one knows what the final pension will be from one provider to the next.
The Scottish government during the Referendum spoke of triple locking pension to protect them , triple locking should be seriously looked at to protect future UK pensions for us all.

Is a Defined Ambition scheme the one where you save for years towards retirement and then the Government encourages you to withdraw a big chunk of the money to buy a Lamborghini and the Treasury gets a huge chunk in tax because you did not buy a pension. Oh, and you will then need to claim pension credits to top up the state pension.

Defined Ambition indeed!

Pension credits will not be available to anybody reaching state pension age after April 2016.

One of the things that worries me about the relaxing of pension pot spending rules is the likelihood that many people will dip deeply into their pot and leave themselves under-provided for in their later years. Inevitably, this would put pressure on the benefit system that no amount of advance highest-rate taxation would cover. I suppose luxury yachts and Lamborghinis will be coming onto the market at bargain basement prices in a few years’ time as pensioners realise they cannot fund the running costs or cannot even drive them. But hey! . . . they’ve had a good time using their pile.

Perhaps not as pension credit but some form of top up benefit.

The Times headline for tomorrow: 200,000 will ‘blow pensions’ next year

This is supposed to be fine according to the pensions minister. “It’s their money and they are free to do what they wish with it” So much for encouraging us to make provision for retirement.

The original justification for the reversion of pension funding has galloped off into the sunset on a horse named Jackpot. The horse called Prudence is now a spavined nag. Unfortunately the government’s utterances only serve to reinforce the short-termism, lack of thrift and rejection of providence that now characterise younger people’s attitude towards long-term financial provision. I think there are some who will spend out their pension pot and then expect the state to provide.

Trying to get my head around the New State Pension scheme which comes in after April 2016.
For those who have contracted out of SERPS in the past ( due to membership of other pension schemes especially Public Sector ones) the much vaunted flat £144 per week will apparently be reduced and may be no more than the current £114 per week rate.

This may well be fair, but this reduction has been kept very quiet and one cannot find out what the reduction will be until after April 2016 ! So much for forward planning.