Although Pension Age Abolition Is A Smart Move It Will Not Solve All Of The Problems With Pensions

Although pension age abolition is a smart move, it will not solve all of the problems with pensions












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Although pension age abolition is a smart move, it will not solve all of the problems with pensions

The top 200 largest UK companies have a combined pensions deficit of over £100 billion and the economic problems with exacerbate the issue

Although the coalition government is on the mark with their proposal to eliminate the pension age of 65, letting people work for a few more years will not solve the overall pensions crisis either for businesses or individuals. Changing the pensions index from the Retail Price Index to the Consumers Price Index which runs at a lower rate will also not solve the crisis nor or will any amount of tiny measures.

Aon Consulting have found that the top 200 companies have a combined pensions deficit of £100 billion. These deficits will get worse due to the downturn as government debt is related to the market. Businesses are banking on long-term recovery to solve their problem but the size of these deficits could halt progress. CBI and Watson Wyatt combined to complete a study which found that over 33% of employers blamed the need for additional pension provision for ruining mergers and reducing competitiveness. Around 40% suggested that pension fund deficits had taken money that would have been better used for investment in the business.

Employees should be allowed carry on into their late sixties. There is no reason to force them into retirement and their assistance and experience should help the economy overall. While there may be complaints that they are stopping younger workers from advancing, at least this will be compensated by a reduced need for new workers to pay for the pensions of others.

Yet this does not help with the final salary pension schemes. Although most companies don’t offer them to new employees anymore and they have also cut benefits, their pension fund deficit is unaffected and in some instances it is larger than what the company is worth on the market. Letting people work longer won’t cut costs as the shortened length of time they draw the pension will be at a higher amount.

Various corporate giants have been embroiled in arguments about pensions. BT wants to increase the costs they charge to their rivals to help cut their huge £6.6 billion deficit but the regulating firm Ofcom is halting them. AstraZeneca’s deficit is £1.4 billion and its plans to freeze its final salary scheme pensionable pay have been met by outraged employees who are planning a strike. Sandwich maker Uniq, which supplies M&S, tried to pay off their £436 million deficit but regulators stopped their plan.

As pension liabilities need to be kept under control, various companies will continue to come under fire from employees and regulators as well as shareholders. Though the UK economy is weak, companies like BskyB and Rolls-Royce are generating profits with dividends being raised at these companies. AstraZenca’s share buyback programme has also been increased.

It is a valid question to ask why investors should benefit while pension fund members suffer. The answer to this is that pension funds are the biggest shareholders in the UK market so it is imprudent to derive them of dividend income.

Businesses have to decide whether to invest in the company or pay off the pension fund deficit as well as deciding between pension contributions or dividends. While it may not be possible to save certain pension funds, some companies may not act in the best interests of pension fund holders. The Pensions Regulator has already noticed that avoidance activity has increased dramatically and the Pension Protection Fund has seen 160 schemes go into its special lifeboat scheme.

Worrying about your pension seems way down our list of priorities as immediate financial problems and issues involving our homes and job security are foremost in our minds. Yet the message seems to be: work harder and longer, save more cash if you can and be less profligate in terms of spending.

 

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