An actuarial consultancy firm has recently claimed that despite stock markets performing well recently, the majority of pension schemes have not benefited. They also claimed that to benefit, the same rate of stock market recovery would need to be seen over the next three years. The reasoning is apparently due to the increasing liabilities for the schemes offsetting any investment growth. These liabilities could be down to things such as the prospect for higher inflation.
Our View
Company pensions, especially if they are guaranteed and linked to your earnings (known as final salary or defined benefit schemes) are very expensive to run for employers. We are increasingly seeing employers offering alternative arrangements to new employees, whilst leaving existing employees within the final salary scheme. This helps them to limit the future cost burden. The employer takes all of the risk with final salary pensions and the employee just gets the guaranteed pension in retirement. Low returns and higher inflation make these pensions much more expensive because the employer will have to use more money to buy the income promised and make it keep pace with inflation.
For those people lucky enough to be a member of a final salary pension scheme, make the most of it. But, a word of caution, if your employer decides to freeze or wind up the pension scheme, take advice. Do not just transfer the benefits you have built up without advice, even if your employer says it is a good idea. The area of pension transfers from company pension schemes is exceptionally complex and you need specialist advice.
Even buying one hour of advice could save you thousands in the long run. Contact one of our highly qualified advisers now.