Get a better understanding on pensions…

WHAT IS A PENSION?

THE ORIGINS

THE MAIN TWO PENSION SCHEME TYPES

  • The number of years in which you’ve been a member of the scheme — known as ‘pensionable service’
  • Your pensionable earnings — this could be your salary at retirement (known as ‘final salary’), or salary averaged over a career (‘career average’), or some other formula, and
  • The proportion of those earnings you receive as a pension for each year of membership — this is called the accrual rate and some commonly used rates are 1/60th or 1/80th of your pensionable earnings for each year of pensionable service
  • How much you pay into the fund
  • The time frame you save for
  • The amount, if anything, that your employer pays in
  • How well your investments have performed
  • What charges have been taken out of your fund by your pension provider
  • How much you take as a cash lump sum
  • Annuity rates at the time you retire
  • The type of retirement income you choose

The challenges facing pensions

  • Research carried out in September 2010 by Aviva estimates there will be a £10,300 per annum shortfall for all those retiring over the next 40 years. This equates to a staggering £317,000,000,000 per annum
  • Affordability is often cited as a reason
  • People think the state will provide for them
  • They feel that retirement is a long time away and that they don’t need to think about it yet
  • People find them complex and difficult to understand
  • The collapse of company final salary schemes
  • Equitable life established in 1762 and once the largest mutually owned insurers in the world with 1,500,000 customers reneged on their promise to pay out guaranteed annuity rates in the year 2000, substantially reducing its pension holders pension incomes

Demographics

HOW CAN ADVISERS ADD VALUE?

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