People who have worked for the same company for many years, where the employer has paid money into a pension scheme promising benefits based on salary and years of employment (known as Final Salary or Defined benefits Schemes), have been seen, until recent times, as very lucky. However, it has been reported that the money to pay all these benefits may not be there. In fact, according to actuaries Hyman Robertson, the deficit of UK Final Salary schemes could be as great as £1 trillion. Put another way, it appears that 83% of UK Final Salary pension schemes are in deficit.
There are a number of reasons that this is the case.
The promises seem to have been too generous. Based on current calculations, someone joining a scheme in 2016 guaranteeing 1/60th of their salary for each year of employment would need to have 50% of their salary paid into the scheme. This is clearly unworkable.
Projected investment returns on the schemes have reduced. Companies have lowered their stocks and shares exposure from just over 61%, ten years ago, to 33%. They have reduced the possibility of making gains when markets are doing well. This means that there is little or no chance of these schemes making good any poor performance from earlier years.
People are living longer on average. When the pension schemes commenced, the life expectancy in retirement could have been less than 10 years. Now many pensioners are expected to live 20 to 30 years after retiring.
The UK Government has already put a block on individuals transferring their public sector schemes to a personal arrangement. It is possible that they will also close the door on all final salary schemes. They may even enforce changes to schemes to reduce pension income, inflationary increases, and spouse’s benefits, as well as increase the pension age.
We apply to the scheme to establish the deficit position and obtain a transfer value which could be at an all-time high due to the underlying economic conditions. This information will then form part of the basis of a detailed personal and independent report.
Why wait to find out where you stand? It will not cost anything to find out if you are a member of one of the 17% of schemes which is not in deficit. If you are not that fortunate, action now could save thousands in lost income.
ACT NOW! REVIEW YOUR PENSIONS.
John Hayward of The Spectrum IFA Group is here to help you. To see how you could benefit from his knowledge (Chartered Insurance Institute G60 in pensions), and his experience of living in Spain, contact him at firstname.lastname@example.org or call (+34) 96 558 7633/618 204 731