Independent Financial Advisers Glasgow News & Guides

The European Commission has published a White Paper on adequate, safe and sustainable pensions, which looks at how the EU and the Member States can work to tackle the major challenges that confront our pension systems.

It puts forward a range of initiatives to help create the right conditions so that those who are able can continue working - leading to a better balance between time in work and time in retirement; to ensure people who move to another country can keep their pension rights; to help people save more and ensure that pension promises are kept and people get what they expect in retirement.

The White Paper proposes, in particular, to:

• Create better opportunities for older workers by calling on the social partners to adapt work place and labour market practices and by using the European Social Fund to bring older workers into work. Enabling people to work longer is a major focus of the European Year 2012 for Active Ageing and Solidarity between Generations;
• Develop complementary private retirement schemes by encouraging social partners to develop such schemes and encouraging Member States to optimise tax and other incentives;
• Enhance the safety of supplementary pension schemes, including through a revision of the directive on Institutions for Occupational Retirement Provision (IORP) and better information for consumers;
• Make supplementary pensions compatible with mobility, through legislation protecting the pension rights of mobile workers and by promoting the establishment of pension tracking services across the EU. This can provide citizens with information about pension entitlements and projections of their income after retirement.
• Encourage Member States to promote longer working lives, by linking retirement age with life expectancy, restricting access to early retirement and closing the pension gap between men and women.
• Continue to monitor the adequacy, sustainability and safety of pensions and support pension reforms in the Member States.

The opportunity to benefit from employer contributions remains the single biggest reason for people to stay ‘auto-enrolled’ in new workplace pension schemes, according to latest research from the Association of British Insurers (ABI).

The ABI consumer survey suggests the introduction of auto-enrolment from October could not come fast enough for many as a way of bringing them out of the ‘savings stalemate’. Not missing out on employer pension contributions (47%) and on tax relief from contributions (14%) were the most popular reasons encouraging people to remain ‘opted-in’ to workplace schemes. This clearly shows that people see the value of their money being made to work harder by the extra top ups they will get from their employer and the Government.

Overall, more than half (53%) of people not already in a company pension scheme say they will remain ‘opted-in’ when their employers begin automatically enrolling them in eight months’ time, and this comes before any significant promotion of the new scheme.  With a further 30% of people still undecided, we could see even more remaining ‘opted-in’ and saving for their future. 

A similar scheme in New Zealand has seen the amount of workers saving for their pension more than double, with more than half of the country’s working population now enrolled. The UK could see even higher figures as its auto-enrolment arrangements will cover all eligible workers, rather than only those who are changing jobs or just starting work.

People retiring in 2012 expect to live on an average annual income of £15,500 – over £1,000 a year (6%) less than those who retired in 2011. The figures come from Prudential’s Class of 2012 research which provides insights into the financial expectations of Britons planning to retire in the next twelve months.

The results of Prudential’s annual survey, first carried out in 2008, show that expected annual retirement incomes have dropped by more than 16% in the last five years. The Class of 2008 retirees looked forward to a total annual income, including private, company and State pensions, of approximately £18,600 – £3,100 a year more than those planning to retire this year.

In a sign of the ongoing financial challenges facing those due to retire in 2012, one in five will get by on an expected annual income of less than £10,000. Meanwhile, around the country there is a regional disparity of more than £5,000 in expected retirement income. Londoners have the highest average expected incomes of £17,900, while those in Yorkshire and Humberside have the lowest at £12,800.

Fewer than two in five (37%) of the Class of 2012 say that they have saved enough to secure a comfortable retirement.

Men are more optimistic about their retirement than women, with 45% of men confident they will be financially comfortable compared with 31% of women. However, nearly one in five (18%) of those planning to retire in 2012 have no idea of the level of income they will need in order to live comfortably.

Proposed EU pension regulations would add significantly to business costs at a time when pension deficits are already holding back company performance, a new poll of business leaders has revealed.

The latest CBI / Towers Watson Pensions Survey, which covers firms employing 1.3m people, shows that the cost and uncertainty of managing defined benefit (DB) schemes - including ‘final salary’ - are holding back businesses’ activity and harming their ability to grow.

Two-thirds (69%) of business leaders are concerned about the prospect of the EU enforcing high deficit payments over a shorter period of time, under Solvency II-style rules being planned in Brussels to cover DB schemes.

At its worst, this could cost employers with DB liabilities hundreds of billions of pounds. It would divert money away from business investment in growth and jobs at a critical time, and harm prospects for investment in infrastructure. The CBI is urging the EU to reconsider its proposal.

The cost of running a defined benefit scheme – whether open or closed – remains a big concern to businesses. Close to three-quarters (71%) are worried about the level of funding, and firms fear that things will get worse, with over four-fifths (85%) of businesses concerned that market fluctuations could further harm funding levels.

Over two-thirds (69%) of companies say providing DB pensions is having a significant impact on their accounts, and close to half (45%) say they have less left to invest to grow the business, up from 38% in the 2009 survey.

Faced with rising pension costs, most employers have already taken action, be it closing their final salary scheme to new members, changing terms for existing members, or freezing the scheme altogether.

This is set to continue. Nearly a third (29%) of companies say their DB scheme is already closed to future accrual by existing members, and this is expected to rise to 43% in the next two years. Two thirds (64%) of employers who currently offer DB benefits to at least some employees are either planning to close their scheme completely or make changes to it within the next two years.

A recent publication from the Office for National Statistics has revealed that in September 2010 only 48% of female pensioners received a full Basic State Pension (BSP), compared with 87% of male pensioners. Many women in the current generation of pensioners failed to build up full or near-full BSP entitlement under the system in place before 6th April 2010, mainly because of broken work histories and part-time work patterns.