Is the UK pension system fatally flawed?
The UK pension sector has received a significant blow today with a suggestion by leading actuaries in the UK that their life expectancy figures could be fatally flawed. The current system is based upon a model created in 1999 which suggested that the rate of increased life expectancy at that time would not continue into the future. However, there is a suggestion that the trend of constantly increasing life expectancy experienced prior to 1999 has continued with potentially disastrous consequences.
The system of pension payments and annuity rates is based upon life expectancy figures in general and specific life expectancy figures for certain areas of the population. Even if these figures are not actually wrong, but there is some doubt, this could further increase future pension funding requirements and leave many pensioners significantly out of pocket. The longer the life expectancy of UK pensioners the more expensive pension funding will become which will either lead to increased contributions or smaller payouts.
This is a potentially disastrous situation and not only for those with private pensions but also the UK government who would be forced in many situations to bail out those left short. When you also add in the fact that the public sector is already running a significant multibillion pound pension deficit there is certain to be increased pressure on the UK pension sector in the years to come.
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