Friday, 15 February 2008

Another Pension time-bomb

This story has been doing the rounds in the media today. Effectively the pensions regulator is berating actuaries, again, for not being very good at their jobs, i.e. predicting the future.

As such companies may well be asked to use more conservative estimates of life expectancy which will feed into calculations of pensions defeicits.

The last time this happened with the change of accounting rules to FRS17, nearly the whole UK pension sector was ruined (for employees) by the switch away from final salary schemes.

What companies will do this time to limit exposure will have to be even more drastic, ouch.

Just to compound this, the real problem not highlighted by this Government funded body is for state sector pensions. The impact on the future national finances will be horrendus, with our children asked to pay out even more form their incomes for our [useless] generations (i.e. public sector pensioners) comfy retirements. All the while our own retirements will be less than fun without some serious discipline upon ourselves to save.

Which is extra nice given the speech of earlier this week by Mervyn King saying that we should all expect falling incomes in the immidiate future.

Enjoy your weekend!


Simon Fawthrop said...

Not forgetting the £5bn a year or whatever it is now that has been raided from our pension funds to lavish on said civil servants during their "working" lives.

Anonymous said...

If it was 5 billion a decade ago, it's doubtless more now.

Jeremy Jacobs said...

Heard this story on Radio 4 yesterday. Another excuse for firms to close final salary schemes.

Go see a film, it'll cheer you up

Mark Wadsworth said...

These final salary schemes in private like all pension schemes are highly overrated. Once the dust has settled, and all the tax breaks have been netted off, what remains is the fact that the pensions and insurance companies have made big fat profits. So by definition the rest of us are all a bit worse off and people's investment decisions get distorted.

How can it possibly be a better idea to give small amounts of money to a pensions company every month than paying a bit more off your mortgage?

Given that the pensions companies make average returns, which you can achieve by shares at random, but pensions companies charge huge commissions, and they invest in unit trusts that charge loads more commissions and so on that eat up most of your dividend income, how can it be better for a rational person, having paid off his mortgage, to give money to these locusts rather than just buy shares directly?

It's a conspiracy, man.

AntiCitizenOne said...

The most efficient form of pension is to get an E-Sipp and invest in tracker shares.

CityUnslicker said...

Simpleton - that was his other great idea of course. As dearime points out, that was a while ago, the cumulative bill now will be huge.

JJ - would love to go see a film but this weekend is marked down for potty training my eldest. Fantastic!

MW - You are right in principle, but then privat companies often match your own pensions contributions which doubles your investment, plus it is free from tax. This more than makes up for the 5% odd that insurance companies shaft you for.

You logic is correct though, as anticitizenone suggests, if we could have an e-sipps that private companies would recoginse that would be hte most efficient vehicle of all.

No good for the snouts in tr trough brigade though so it ain't gonna happen.

AntiCitizenOne said...

Actually you can transfer out funds to another pension-pot.

You can start your SIPP using funds in your company's money purchase account by transfering out.


I thought you might like this...

FED H3 Report -$18B !!!!!!!!!!!!!!!!

The federal reserve has no (unlent) reserves left.

Ed said...

I have a SIPP, however most of my cash is "self invested" in my local publican's pension...

AntiCitizenOne said...

Publicans tend to be heavy drinkers, so they can obtain an impaired life pension which offers them an increased payout.

CityUnslicker said...

AC1 - yes you can but then the company is under no obligation to match funds any more. Not that i have looked into it properly yet.

The fed loves being out of money. The US has certainly gone 'all-in' at this point.

Anonymous said...

The mother of one of my friends worked for a tobacco company, and for several years after she retired part of her pension was paid in cigarettes. Now that's what I call a great way to defuse the pension time bomb, although the devilish plan failed. She is in her early 90's today, and still going strong.

Mark Wadsworth said...

Northern Rock nationalised a couple of hours ago. Let the fun commence!

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