A report by the Pensions Policy Institute think tank has concluded that the state pension age needs to increase to 72 years by 2030 in order for the UK government to "balance the books". If this particular recommendation was put in place then the cost of the state pension (to the government) would be the same as it was in 1981 and therefore take some pressure off the UK government budget. But is this really possible?
This pension sector is one which is never far from the headlines of the financial press although it is one which many people do not fully seem to understand. A number of the UK population have never even considered a personal pension and unfortunately many are not in a position to fund such a financial arrangement for the future. However, do you really need a personal pension?
EMI, one of the best-known music labels in the world, has not been able to come to an agreement with the trustees of the company's pension scheme and the situation has now been referred to the Pensions Regulator. The Pensions Regulator will now attempt to bring the two parties together to formulate an agreement which can be put in place over a ten-year period. The current deficit on the company's pension scheme is running at around £217 million although at this moment in time the company is struggling to retain its position in the music industry.
The UK government is today under pressure to review the proposed change in final salary pension scheme calculations which would allow scheme trustees to use the consumer price index as opposed to the retail price index. While both are measurements of the UK economy and the cost of living, the consumer price index is currently running at 3.2% while the retail price index is running at 5%. While in the short term this may seem academic and of little relevance, in the longer-term the impact could be huge!
While the underlying underfunding position of final salary pension schemes operated by FTSE 100 companies is around £73 billion there after 10 companies with alleged pension fund deficits which are in fact greater than their market capitalisation. This perfectly reflects the massive turnaround in pension fund deficits which around a decade ago were actually in credit. The days of companies taking "pension fund contribution holidays" have long gone with companies such as British Airways and British Telecom struggling with enormous pension fund deficits.
Robert Schofield, the chief executive of Premier Foods, has today called the end of the final salary pension scheme in the UK having effectively been forced to ditch the company scheme for its 17,000 strong workforce because of the company's high level of debt. Premier Foods, which owns brands such as Hovis, Mr. Kipling and other well-known food names, was the last FTSE 350 company to open a final salary pension scheme to provide adequate pensions for its workforce in retirement.
The UK's top 100 blue-chip companies last year pumped a record £17.5 billion into their struggling pension schemes which allowed the deficit to be almost halved, currently standing at around £51 billion when taking into account income and investment gains. Records indicate that Royal Dutch Shell injected around £3.3 billion into its own flagging scheme with the likes of Lloyds bank, Royal Bank of Scotland and Unilever increasing pension fund contributions to around £1 billion.
A report this week has cast a very dark shadow on the UK pension industry with accusations that UK pension arrangements are being hammered by fees which can in some cases add up to hundreds of thousands of pounds before retirement is taken. Some experts in the pension industry believe that for example someone saving £200 a month for their pension could suffer fees in excess of £200,000 over a 40 year period. In some cases this can lead to a final pension of around half that which similar savings patterns would attract in Europe.
The subject of the UK retirement age has been in the headlines this week with the UK government loosening the regulations regarding statutory retirement thereby allowing people in the UK to work beyond their 65th birthday. But how long would you like to work before you are able to retire?
Proposals by the UK government to increase the retirement age in the UK have been met with a mixture of disdain and relief. While there is no doubt that more and more pensioners are struggling to make ends meet in their retirement years there is also no doubt that allowing people to work longer will reduce the potential employment opportunities, and promotions, for the young of today. So who is really to blame for the UK pension problem?
