Pensions have been making the headlines recently. People are living longer, savings investments are falling everywhere, and many companies aren't prepared for the reforms that the 2008 Pensions Act will implement. So what do you need to know to make sure you're ready?
Passed in 2008, the Pensions Act contains a number of measures aimed at encouraging greater private pension saving. From 2012, all eligible workers who aren't already in a workplace scheme will be automatically enrolled into either their employers’ pension scheme or the new Personal Account Scheme. To encourage participation, employees’ pension contributions will be supplemented by contributions from employers and tax relief.
The automatic enrolment plan means that instead of choosing whether to join a workplace pension scheme provided by their employer, all eligible workers will have to actively decide not to be in a scheme if they don't want to contribute to their pensions. Contributions will be at 4%. This will be supplemented by employers, who will be required to contribute a minimum of 3% to an employee’s workplace pension scheme. The government will provide 1% in the form of tax relief.
The death of final salary schemes has been covered a lot in the press recently, and the Pensions Protection Fund recently announced that the collective deficit of these schemes in the UK is now at £195 billion, rising 43% from the end of November 2008.
According to the findings, only 11% of schemes are in surplus, which is way down from 40% last March. The deterioration has been largely due to the worldwide economic slowdown and the accompanying slump in share prices.
Final salary schemes, which offer guaranteed benefits to members, are facing pressure from plunging stock markets, falling interest rates and growing life expectancy. Many schemes have already closed to new members, and only a quarter of private sector employers still hold them open.
The funds are becoming increasingly expensive to maintain and are likely to be cut as companies attempt to save money and reposition themselves during the downturn.
Mercer recently completed a survey that showed substantial increases to life expectancy assumption for active and deferred members of pension schemes. This doesn't suggest that putting some money away will help you live longer - that statistics are used to help trustees fund their plans more effectively.
The life expectancy increased from 88 years and 2 months up to 89 years and 1 month.

(Courtesy The People Bulletin)

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