Retirement Income

September 13, 2011 by staff 

Retirement IncomeRetirement Income, The collapse of plans for “defined benefit”, including the golden final salary pension, reduced levels of saving for retirement, according to a report of the social policy think tank Civitas.

The failure of successive governments to protect consumers has also led to “unfair practices” among suppliers, pushing down the total value of millions of pensions, the study reveals.

Overall, millions of Britons are disadvantaged in old age they should be, according to the authors of the report, the pension expert Peter Morris and Alasdair Palmer, editor of public policy for The Sunday Telegraph.

The report accuses successive governments, dating from the Conservative administration of Margaret Thatcher, to “leave the field” on pensions because of “confidence … in dogmatic free-market principles.”

This has meant individuals rather than employers, have become more and more responsibility for their own retirement funds.

The complexity of pension baffles consumers, many of whom are unable to understand the implications of different charges, argue the authors of the report, which is on your own. Managers often can charge what seems a small fee, defined as a percentage of growth of the pension “pot”.

The report cites the example of a “management fee”, typically 1.5 percent. This could cost as little as 15 pounds in the first year of a plan, but as the pot grows, could reach £ 3,000 by the year 40 – which would lose a pension of one third of its value.

Such charges are rarely illegal, say the authors, but are “rogue” and would be seen as “scandalous” if adopted by other professionals such as doctors and lawyers.

The problems only apply to plans for “defined contribution” that have proliferated since the collapse of final salary pensions that provide a predictable regular income for retirement.

Defined contribution plans place the risk more strongly in people and leave them at the mercy of the stock market and economy, the report said.

Upon completion of these plans, savers have to buy an annuity, which in turn can hit up to 15 percent off the value of their pensions.

The report notes that the complexity and confusion have combined to bring savers put off long-term decisions tone much longer than is prudent.

The authors state: “The delay of the issues are daunting, confusing, or just not very interesting – all of which can describe the attitudes of pensions – is very common.

“MORI asked people who prefer to do: change a dirty diaper or organizing your personal finances Ninety-four percent said they would not change a dirty diaper?”.

Starting next year, many will have the opportunity to pay up to £ 4.200 a year on a government pension plan called the National Savings Trust Employment (NEST).

“However, the authors argue that the” cap “should be lifted because it is too low – and was created not to help the depositors, but to ensure that the fund does not compete with the” very comfortable “private pension industry.

In the foreword to the report, David Green, director of Civitas, urges ministers to those who currently invest in private pensions to transfer their money to NEST in order to direct competitive pressure in the industry.

A survey last year by the Association of Consulting Actuaries found that nine out of 10 defined benefit pensions are closed to new members as employers continue to move away from expensive final salary schemes.

About 91 percent of defined benefit schemes were in deficit, and a fifth of the plans said that the deficit could be more than 10 years to close.

Lord Hutton, the former secretary of labor work and pensions, a report earlier this year, which was the basis for the Coalition to raise the general retirement age public sector from 60 to 66, moving from a final salary scheme a career based on the average revenue and increase employee contributions by an average of 3.2 percent.

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