(Source: Money Marketing)
As pension saving has moved from defined benefit towards defined
contribution or personal pensions, investment risk, longevity and
inflation have become issues that pension savers are having to deal
with themselves. In the first of a four-part series, Annie Shaw
looks at how the retirement saving landscape has changed and how
pension savers can manage the risks involved
The decline of company final-salary pensions was inevitable. Even
without Gordon Brown's pound 5bn tax grab, often cited as the final
nail in the coffin for occupational defined-benefit schemes,
increasing longevity and a raft of changes to the rules were already
making continued provision an expensive option for employers.
Now, just four FTSE 100 companies (Shell, Tesco, Cadbury and
Diageo) offer a final-salary pension scheme to new employees,
compared with 40 per cent of companies a mere five years ago.
For smaller firms, the situation is very similar. The Association
of Consulting Actuaries reported in September that 87 per cent of DB
schemes are now closed to new entrants and 18 per cent of those are
also closed to future accrual. Trustees of 39 per cent of DB schemes
are reported to be considering changes to future accrual for
existing members.
This puts a huge burden on employees to take responsibility for
their own retirement provision. Yet the ACA survey also found that
76 per cent of employers feel their employees are uncomfortable with
taking on the investment, inflation and longevity risks inherent
with defined-contribution schemes. An even higher percentage - 81
per cent - feel that employees are not capable of determining how
they should manage DC saving.
Soon, however, even workers who have not in the past been willing
or able to take on retirement planning for themselves are to have it
thrust on them. From 2012, employers will be obliged to enrol
employees in a pension scheme if they are not already in one. It
remains to be seen how those who do not opt out cope with risk or if
they will simply shut their eyes and resign themselves to the
fortunes of a default fund.
Jonathan Hill, a chartered financial planner with solicitors
Milton and Dormor of Chard in Somerset, says: "With state pension
ages creeping up and longer life expectancies, consumers need to
focus on pension planning for the very long term. From an investment
perspective, the first challenge is selecting an investment that has
a fighting chance of beating first, the underlying product charges
and second, inflation, a hard act in anyone's mind.
