There was a second successful attempt at a pension estimate from nest, I turned the clock back to age 25, with a wage of £25,000 pa and 8% contributions, £1,250 for myself and £750 Employer a total of £2,000 per year, with retirement at 65.
A final fund was given of £164,000, with breakdown for self, employer, tax relief and investment growth of £71,600, a cash lump sum of 41,000 with a pension of £6,330 after charges. These equalled growth at 5% and final annuity return of 5.1%, with a replacement yield factor of 3.2 or 4.1 without cash sum, when income would be £8,100.
This is a good performance, if it is met, particularly if it was guaranteed, but my own experience with defined contribution schemes is promises, promises with stagnation in the latter stages, when it is too late to correct.
The potential for a good pension scheme is large, with over two thirds of the population in work, some 20 million, having no pension provision outside of the State and automatic membership, the numbers are huge. If only 1%, that is 1 in a 100 are initially recruited, some 200,000 members, contribution income at £2,000 per head amounts to £400 million per year, with fund values reaching £16 to£33 billion.
Contribution charges at 1.8% would amount to £7.2 million and fund charges to £48 million, with annual investment/ growth at £800 million. if you multiply these by 100 (for the full 20 million), the figures are mind boggling with investment returns at 80 billlion exceeding basic State Pension costs.
There is also a time delay before pension start to be paid, possibly up to 20 years, the minimum time it is reasonable to save for a pension, unless large sums are paid in, which allows funds to build up before pensions are paid.
This was the basis of the proposed transition of State pensions to fully funded schemes by rebating NI contributions, which is more affordable and sustainable than the present bodged single tier pension. This could be in nest, but would be better in sounder based schemes.
This week, I logged on to the University Superannuation Scheme site, I typed USS into Google and it was the first match and was a truly professional site, a complete difference to nest, with full details of the fund, members, contributions and benefits. I even downloaded the latest 2012 set of accounts
With 149,000 active members and funds of £34bn it is one of the larger private DB pension schemes; annual contributions amount to £1.5bn with pension paid of £1.4bn to 53 million members, 60% of which comes from investment income. Admin charges amount to 1.05% of contribution income and investment charges to 0.14% of Fund value, much better than nest.
Such well managed schemes could be the basis of Universal DB schemes, true National Employment Pension Savings Trusts, which could give members greater security and a better deal, plus ownership of their pension savings. It would also save the State money and be free of interference and policy changes.
It is time we all woke up, particularly the State, to the realities of Pensions and their adequate provision, we can no longer depend on those in work to support the increasing numbers and demands of the older population. We need to ensure self sufficiency, which can only be achieved in well managed DB pension schemes.
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