In the last blog, I considered the ridiculous situation that arises in insecure and unstable Annuity rates, which are one of the reasons for the poor return on pension savings. It is part of the overall failure of pension provision to recognise that contributions are individual savings with personal ownership.
If you put money away in a Building Society, Bank, PO or similar savings account, you are told the net return after all costs and charges; receive regular statements; can even get interest free of tax and also guarantees from the State up to £70,00 for each account.
Put that money away in regular monthly Pension contributions and you have a completely different scenario, it is no longer treated as belonging to you and disappears into an unknown void. If you are lucky you may get vague annual statements with projections of the expected pension, if you continue to make payments for the full 40 year term. These tend to be revised downwards every year, reducing as you approach retirement.
Of course you get the advantage of tax relief on these contributions, which for the normal person are worth a fifth (20%), however your provider will immediately take a quarter of this (5%) to buy units at the bid/ offer difference and probably double this for charges. The State also makes a protection levy in case your money is stolen by your provider or Employer.
As you may have guessed, your pension monies have no protection or security guarantees by the State or that they may even grow in the Fund, with FSA having no control over performance. Any projections given in initial proposals or subsequent statements are only an indication of if, if and if and not worth the paper expended.
It all culminates after 40 years of diligent saving in the annuity lottery, dealt with last time. The State is no better with NI contributions and the final poverty pension is treated as a benefit not a right.
You may of course be lucky enough to belong to a Company scheme in which further contributions are added as part of your employment contract, effectively earned by you, but again the anybody’s money attitude applies. The majority of major Companies run good defined benefit schemes in which Funds are wisely managed and invested but unfortunately these are on the decline.
Some put the money directly into the business, where they are lost or stolen in Company liquidation without redress or Government control, hence the protection levy !!! The State has also regarded such Funds as a good source of taxation revenue and also introduced minimum Fund levels which often limit the weathering of market drops resulting in forced selling and associated losses.
Public Sector, the subject of current dispute and rancour, is even worse, with no excuse made in not saving contributions or even treating them as such, in fact they are used as taxation income with little real information made available. Returns on contributions paid are poor with a similar benefit attitude rather than rights.
Members contributions range from 6 to 11% and are due to e increased by 3% and supposedly are met by similar employer sums, yet the last GAD report indicated average NHS replacement returns of 25%, hardly reflecting the members contributions alone.
It is difficult to foresee the outcome of the compulsory Nest pension savings being brought in this year, with a potential 20 million new pension members, but it appears to have been based on pension business as usual with loss making defined contributions, excessive charges, and existing poor speculative investments.
The opportunity for drastic pension reform seems to have been ignored and we appear due for an extension to the failed NI system with large investment funds lost in the failed Commercial and Banking system.
The need for reform is apparent but still being ignored, a pension as savings attitude would make a large difference.
Annuities, Public Sector, NHS, Teachers, Police, Local Government, Hutton, State Pensions, Transport, Comment
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