A report by Aviva and Deloitte has today cast a very dark shadow on the UK pension fund industry with the revelation of a £318 billion a year shortfall in pension funding in the UK. Each and every adult retiring over the next 50 years will need to put away over £10,000 a year to close the pension fund gap which is defined as the difference between income required for a comfortable living and that currently available from pension funding at the moment.
The UK government is believed to be reconsidering the level at which employees in the UK would be automatically enrolled into a pension scheme as well as a potential exemption for small companies. The original changes, which would see hundreds of thousands of employees in the UK automatically enrolled into pension schemes, are set to come into play in 2012 although we may see some changes to the original guidelines before then.
The BBC is a tackling its £2 billion pension deficit with a new proposal to employees which would see their pensionable income based upon an average of their earnings over a career rather than their final salary figure. If pension fund trustees and pension fund members agree to the change in pension base calculation the BBC will also eliminate the 1% annual cap on the growth of pensionable salaries. This comes at a time when negotiations between pension fund trustees, the BBC and pension fund members have come to something of a stalemate.
The National Association of Pension Funds has today stepped into the mix to suggest that the UK government is being "too hasty" with regards to proposals to increase the state pension age for men to 66 years of age from 2016. The Association believes the government should look to equalise the state pension age for men and women to 66 years of age from 2020 in order to give those in their mid-50s more time to rearrange their assets to take account of future pension age changes.
Alliance Boots, the merged operation between Alliance Unichem and Boots, has today announced the outsourcing of its £300 million defined benefit pension scheme which was the old Alliance Unichem pension arrangement. This scheme has around 3000 members with liabilities of around £300 million although this is only a small portion of the company's overall pension arrangements.
Blue-chip companies in the UK are now using £2 out of every £3 in pension scheme premiums to reduce their liabilities as opposed to investing in employee benefits for the future. A report by KPMG indicates that overall there has been a £15 billion increase in pension fund liabilities for FTSE 100 companies during 2010 so far. The figure now stands at £65 billion which is an enormous 50% increase since 2008.
A number of pension related companies have this week come out with various comments regarding the forthcoming "auto-enrollment" pension scheme with a consensus that the additional cost of implementing this scheme, to be borne by the private sector, will lead to reduced pension contributions from sponsoring companies. The scheme will come into play between 2012 and 2017 whereby workers will be automatically enrolled in company pension schemes.
A report by Prudential claims that the vast majority of UK couples fail to discuss their retirement options before it is too late. Many over 55's are currently sitting on significant equity in their properties although equity release options are very rarely discussed in detail. Indeed the report suggests that over 30% of couples aged 40 have no idea about the financial strength or the financial weakness of their partner and can therefore not plan ahead with any great confidence.
The Pension Protection Fund, the rescue authority which covers corporate pension failures, has announced plans to increase its liquidity and its asset backing in the medium to longer term. The authority will increase its solvency ratio, the amount of assets available compared to the amount of liabilities taken on, from 88% in March 2009 to 110% over next 20 years.
Over the last few months there has been a constant drip feed of negative news regarding the UK pension age which is expected to increase significantly in the medium to longer term. There are now estimates that the national pension age will increase to 72 years over the next 20 years in order to allow the government to "balance its books". So would you like to work until you are over 70?
