Over the coming months, employers will face increased scrutiny as the decline of the index-linked final salary pension scheme continues.
Under the microscope will be the way they promote cash incentives to employees in exchange for them transferring away from an index linked, no investment risk final salary scheme into a less generous money purchase scheme.
Incentives can run into tens of thousands of pounds as employees address the issue of final salary schemes that are in deficit and will continue to struggle to meet future liabilities. Although not illegal, the incentives are being used to apply an immediate increase in income in exchange for future inflation linked increases that could have the effect of reducing the purchasing power of a pension by a fifth in 20 years.
The Big Brother approach will continue over the next few years following the introduction of the National Employment Savings Trust that will introduce compulsion into the work place in the pension field. This will include an employer contribution of three per cent to be matched by a contribution of four per cent from the employee and one per cent from the taxman.
Employees will be randomly selected and questioned as to how they were advised in respect of employers pension schemes and whether they were offered incentives not to join the scheme.
For those of us who have to take on the responsibility ourselves, we continue to fail to save sufficient for our retirement in a time where there are massive changes on the horizon for pension provision in the UK. We are still saving too little and spending too much.
The world’s population of over 65s is set to increase from 550 million today to more than 1.4 billion by 2050 making provision for later life even more important.
A recent report from HSBC examined attitudes towards retirement across the world and found that although British people understood about increased longevity and they would most likely outlive previous generations, they were still failing to set aside enough money for their own retirement.
