Pensions – the dark clouds hanging over your sunset years: Belfast Telegraph

I hope you enjoy your job: the chances are you will be doing it for many years longer than you once assumed.


Many of us — probably most — can forget about finishing work at the traditional retirement ages of 60 or 65. Working into our 70s is much more likely.

There are several reasons why old age is now unlikely to be a period of wealth and leisure.

The most important is that employers are cutting-back on their commitments to staff pensions by closing final salary schemes — in which employees are paid a pension of an agreed percentage of their last year’s pay.

Instead, an increasing number of employers only commit to paying a defined contribution to their staff’s pension fund. The risk lies with employees, who are expected to top-up the fund to get a decent pension.

Many established schemes are in a mess. Across the UK, private sector employers have underfunded pension schemes by about £240bn. (It is worse still in the public sector — government schemes are thought to have unfunded liabilities of perhaps £1,000bn.)

Companies have, in many cases, not put in enough money over the years; the value of the funds fell by over 20% as a result of the global financial crisis; pension funds became much more heavily taxed in the early years of this government; and people live much longer, increasing the amount pension schemes have to pay out.

So, says Tom McPhail, head of pensions research at advisers Hargreaves Lansdown, it is hardly surprising that employers are questioning their commitment to schemes.

“If UK industry had to meet all its liabilities [to pension funds] right now, then UK PLC would go bust,” he says.

Meeting the costs

McPhail argues that we should move beyond the argument of whether it is right or wrong that employers are paying less into pension schemes: we need to accept that this is the reality. “Your retirement is now your responsibility and you need to take responsibility for it,” he warns.

That means putting much more aside during working life to meet the costs of retirement. McPhail says that while employers typically contributed 23% of pay to final salary and other defined benefits schemes, on average they only contribute about 10% to defined contributions schemes.

Logically, that suggests that an extra 13% of gross pay should be set aside by employees towards their retirement.

The dire prospects for most people’s retirement is illustrated by other key facts. According to the National Association of Pension Funds, the average annual pension provided by a defined contribution scheme is less than £1,000 a year.

This is much less than the basic state pension of £412.75 a month. Yet pensions company Friends Provident suggests that people typically require about £832 a month to live on comfortably.

Worse still, a recent survey found that one in three people had no pension provision in place at all.

And if people thought they could rely on the family inheritance — think again. More than half of those retiring today have parents who are also retired.

In more ways than one, workers have to recognise that they will have to live off their own savings in retirement.

Help from elsewhere is in short supply.


Only 17% of private sector employers still offer final salary pensions to new employees.

And 74% of private sector employers who still have a final salary pension plan to end it for existing employees.

About 90% of public sector employees have final salary pensions.

An incoming Conservative government could end final salary pensions in the public sector.

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