Pension myths exposed
The Sunday Times has a good article today 6 Pension Myths Exposed. All 6 points are valid but the two major ones for me are 1) People aren’t saving enough 2) People don’t release how under funded company schemes are. The Sunday Times says simply having a pension is not enough. Workers need to save about 15% of their salary throughout their careers, but research from unbiased.co.uk, the advice site, found the average pension contribution is 3.1%.
The Sunday Times then goes to say it’s a myth you should never leave a company pension. Defined-benefit pensions based on your final or average salary can be valuable, as they offer a guaranteed income in retirement plus guaranteed annual inflation-linked increases. For this reason, the usual advice is never to leave one.
However, they are far from rock solid. Figures published last week by Towers Watson, the actuarial firm, suggest that the UK’s biggest 350 companies are currently 11% (£71 billion) short of the £641 billion they need to pay the pensions promised to staff.
Alasdair Macdonald, head of investment strategy at Towers Watson, said: “Defined-benefit pensions are not risk-free. If an employer fails, you may end up with less than you expected.”
There may be occasions where it makes sense to transfer out of a scheme — if it has a serious shortfall and you are in line for a sizable pension, for example.
If the company goes bust, or even, in some circumstances if it is taken over, the scheme could be transferred to the Pension Protection Fund (PPF), where payouts are capped. The maximum paid by the rescue fund is £30,644, although this declines with age, reaching £21,988 at 50, for example.
BMI pilots lost up to a third of their pensions earlier this year when Lufthansa sold the carrier to International Airlines Group. The buyer did not acquire the pension scheme, which was transferred into the PPF instead.
According to the British Airline Pilots Association, a senior captain expecting to retire on a pension of £78,323 after working for BMI for 27 years and nine months, will now get only £26,881 from the PPF.
At deVere we think the situation is even worse, most company schemes are simply unsustainable. If you live abroad and intend retiring abroad you should consider a QROPS and most important of all make sure you are saving enough.