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The pension landscape in the UK is facing a crisis people are living longer, but too many people are not saving adequately for their retirement. In particular, individuals on low-to-moderate incomes are not putting enough money aside for their retirement years.
To encourage more of us to save for retirement the Government is changing the rules governing occupational pensions. It is introducing two key amendments – auto enrolment for employees and the National Employment Savings Trust (NEST).
In the past few years companies both big and small have decided to close their final salary scheme. Increasingly, companies are following this trend and moving away from offering “gold-plated” final salary pensions to their staff. Instead they offer the less valuable “money purchase” scheme.
In a nutshell, final salary pension schemes are becoming too expensive for employers to offer their workforce.
Generally, all investments are subject to some loss or gain. Even cash can be eroded by inflation over time. Investment markets have good times and bad times. When a fall eventually comes the effects can be dramatic as we have recently seen with 2008/09 crash. Then the British FTSE 100 recorded the worst year end results on record – down by more than 30%. As the markets fell around the world financial turmoil set in and subsequent global recession began.
If you are a member of a defined contribution company scheme or a personal pension, when you come to retire you will exchange the pension pot you’ve built up over the years for an annuity. The amount of regular pension you get in retirement will depend upon the size of your pension pot and the annuity rate you get for your chosen annuity.