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Discussion and analysis of the latest economic issues.

By Sean O'Grady, Economics Editor of The Independent.

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Facing our pensions obligations

Posted by Sean O'Grady
  • Wednesday, 24 June 2009 at 11:51 am
The Pensions Regulator, David Norgrove, says that companies are not facing up to the true size of their pensions obligations. Nor are we workers facing up to the shortfall many of us will face at 60 or 65 (or even later retirement, the way things are going).

The usual assumption of politicians and journalists alike about the great pensions crisis is that it has, somewhere, a solution. I'm not so sure. The best pensions will always be those final salary ones that sustained a generation of the British middle and some of the working classes in a comfortable anxiety-free retirement. They are going, as recent reports indicate - down to 12 per cent of the private sector workforce. They were too expensive apparently, as are their public sector equivalents. Few can doubt that they too will be trimmed over the next decade, whoever gets into power.

The alternative usually offered is a money purchase scheme. We all know what is wrong with those - high charges, dependence on the vagaries of the stock market, at risk to fraud or incompetence, rubbish returns. Just think Equitable Life. No surprise that MPs don’t have those ones.

Actually, final salary schemes are also prone to risks, though the e pensions compensation scheme mitigates a good deal of them (assuming it too doesn’t default one day). Or you can do it yourself - buy a house or shares or classic cars or fine wines or gold or whatever: Not the most tax efficient, but you will have no one to blame but yourself for mistakes. The state could force us to save, but then get the blame if something goes wrong with the schemes it authorises.

All, you see, are flawed. Is there an answer?




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