The difference between private sector and public sector pension arrangements?
The release of Lord Hutton's report into public sector pension schemes perfectly illustrates how an explosion in the number of public-sector workers in the UK has contributed to an ever-growing liability for UK taxpayers. The vast majority of public-sector pension arrangements are based on an employee's final salary which can often bear little or no resemblance to the potential investment return on the pension funds in question. So why is there such a big difference between the private sector and the public sector pension setup?
The truth is that the public sector is guaranteed by the UK taxpayer and boom and bust periods in the UK economy have no impact upon funding arrangements. However, boom and bust scenarios have a major impact upon private companies which can in many cases lead to pension fund deficits and cash flow problems. When you also take into account the fact that private pension funds are invested in the stock market in the UK and worldwide assets for the future, thereby exposing them to the varying rates of return, this can and does have a major impact upon the final funding available to each and every pension scheme member.
Final salary pension schemes are few and far between in the private sector today despite the fact they are commonplace in the public sector. The UK government needs to reduce the difference between public sector pension payments and private sector pension payments otherwise more and more UK taxpayers will be funding public sector arrangements while they struggle to arrange their own funding for the future.
IBM looks to close final salary UK pension scheme
Computing giant IBM has today announced the beginning of a 60 day consultation with members of its final salary pension scheme in the UK. The 5000 members (representing about one quarter of the company's workforce) will hear plans to enhance current defined benefit payments and ultimately close the scheme altogether.
If these proposals are rubberstamped, as seems highly likely, the...
American Express suspends contributions to UK pension scheme
In a move which many people hope will not be replicated across the UK business sector, American Express has today announced that company contributions into the UK final salary pension scheme have been suspended. The U.S.-based giant has, like so many other financial companies, suffered during the recession and confirmed plans to stop matching employee contributions for the next 18 months, somethin...Read More
Hargreaves Lansdown forecasts pensions 'car crash'
The pensions sector is heading for a "car crash" - with an income of just £1,380 a year currently being derived from the average pot.Independent Financial Advisor (IFA) Hargreaves Lansdown made the finding in new analysis released yesterday, which also showed that the number of people paying in to plans had dropped from eight million to seven million over the past year.This is thought to be becau...Read More
UK public companies boosted by potential pension funding change
Shares in BT, British Airways and ITV were fairly buoyant towards the end of last week amid news that the Pensions Regulator may be taking a softer stance on pension deficits. The three companies mentioned above have particularly large pension fund deficits, due in the main to a fall in the value of property and the UK stock market, which had led to fears of financial problems in the short to medi...Read More
Pensioners to take advantage of flexible pensions
08/08/2014 Over a third of pensioners will take cash out of their pension fund when new rules come into effect in April 2015, according to H M Revenue and Customs. That will mean an estimated 130,000 people will take advantage of the changes to the pension system, which were announced by chancellor George Osborne in his 2014 Budget speech. These changes mean that those aged 55 or over ha...Read More