Wednesday, January 02, 2013

New Pensions Crisis on Way...Millions will get Pension Boost

This morning (2 Jan 2013) I noticed that the entire front page of the Daily Express newspaper (see online page to right with picture of smiling grey haired pensioners) was taken up with this banner headline "Millions Will Get Pensions Boost".

I thought at the time that it was unusual for a tabloid to be saying anything positive about pensions. So I had a look tonight at the online version and found that due to the recovery (or sorts) in the price of shares that the deficits of pension funds had been reduced and the value of private pensions increased.

Which is good thing but hardly news since the recovery of the markets is well known. However, there was a link under the article to another Daily Express article written a whole 2 working days earlier (28 Dec 2012 see left with picture of unhappy grey haired pensioner) with the headline "New Pensions Crisis on Way". 

This alarmist article predicted the end of private pensions by 2050! Now I have posted on a similar misleading article on the "end of pensions" here.

But my point is no wonder people are genuinely confounded and confused by pensions when there is so much inaccurate and sensational misreporting by the media and in particular the tabloid press. Are pensions a good thing or a bad thing? How can you tell on the basis of this coverage. This is one of the reasons why so many give up on saving for their retirement and will end up dying in poverty.

The real problems with pensions is that employers either don't contribute anything or only grossly inadequate amounts and that many of the saving products on the market are simply rubbish. Bad value, insecure, nonsensical accounting and the final pension amount totally at the whim of the stock markets and government policy of the day.

The answer of course is decent modern defined benefits schemes for all. 


Anonymous said...

I personally think the pensions 'timebomb' or whatever you wish to call it will be the next financial scandal. Money purchase schemes are extremely inflexible and currently with annuity rates as they are, people are probably better off not putting their own money into pensions. If you pay 100K before your retirement into a 'high' interest building society account, the interest you will receive annually will probably be the same amount as the pension company pays you each year. Significantly, in the building society you get to keep the original 100K - unlike with the pension company which takes your money away.

I would suggest that most people paying into pensions are ignorant of how these plans work. The government will continue plundering pensions and colluding with the insurers to maintain the secrecy about pensions and the huge shortcomings of these schemes.
I think public realisation of what is happening will increase and we shall see more groups highlighting this scandal.

John Gray said...

Hi anon

It's a good guess. We have a decades old dysfunctional pensions sector. It goes quite happily from scandal to scandal to scandal.

Nearly all building society rates I see are below inflation and remember there is no absolute guarantee that rates will not go even lower in the future (and stay low - remember Japan). If this happens your capital is still being reduced.

I still think that pensions are still worth investing in because of tax relief. Especially if you are a higher rate tax payer.

It’s also enforced saving.

Its making sure that you are not being ripped off in charges that is one of the chief problems.

Annuity rates should rise in the future when bond prices crash (see my recent post) which could wipe out any uplift by cutting the value of your fund!

The government is not plundering the pension funds (but is planning to do so with defined benefits schemes) but it is doing little or nothing to support since its key concern is getting out of recession and is relying on cheap money to do so. Which hits all savers.

The real problem is pensions are suppose to be super long term 60 year savings plans. Yet are being wreaked by very short term distortions.

This is madness. Why should your total fixed return on your one off £100k investment ever be based on volatile gilt prices/yields of the day?

Most pensioners can now delay taking an annuity and take an income. But this is risky and most pension pots are just too small.

I am getting more and more cynical about defined contribution pensions. They are just not fit for purpose. Not that impressed with so called defined ambition either if truth be known. They just seem to be expensive DC.

But they are all better than having no pension.