Earlier this week I attended a pension seminar, put on by work because my pension’s ‘Terms and Conditions’ are changing. As someone who is under 30 (still!), I’ll be honest and say that I’ve not really paid much attention to my pension, beyond the fact that my contribution, alongside my company’s contribution would add up to 15% of my pay. I took this number from the time when I was at University and shared a house with an Independent Financial Advisor.
The scheme in which I’m enrolled will be changing in August to new minimum contributions from the employee, but a scale of increased contributions from the company provided the employee also increases their contribution. The net effect for me, will be that without increasing contributions, my total percentage of my contributions versus salary will increase significantly. So a win for me!!
So, I hope to merrily make my way through my work life, contribute as heavily as I can, as well as directing the kind of investments in which my pension funds should be put into. I can choose a passive management fund (i.e. I tell someone else to look at it) which will have medium risk and possibly medium returns, or I can be actively in charge of it… but this would mean practically daily management (as well as a clue about investment in funds / bonds).
Anyways, once I’ve done all of that, I have to choose a retirement age… and the size of the end fund, will obviously depend on how much I put in and for how long I put it in. At the end I will have two main choices… draw down funds from the pot until it runs out or I kick the bucket… or buy an annuity which will guarantee a ‘pension salary’ for every year I live beyond my pension age. The gamble being that I probably wouldn’t get anywhere near as much money back over my pensionable life as I saved up (and that’s not even getting into the fact that the pension I receive will be taxed…).
Then of course is the possibility that I’ll get a state pension… at some age between 68 and 75 potentially (if I’m fortunate enough to live that far)… which may or may not be a flat rate or a variable rate depending on income… who knows really?!
I have to say, I’ve found it all very interesting. It was a real education on what life could be like after work… and whilst I know every day is a gift and we should enjoy it to the max, I’m a firm believer in the mantra “enjoy every day like it’s your last, but plan like you’re going to live forever.”
All of this has come against a background of angst and anger from the Public Sector trade unions over the Government’s plans to change pensions for the majority of Public servants. Danny Alexander (the UK’s Treasury Minister) came out this week and said that it was the Government’s intention that most Public Sector Pensions would be tied to the State Pension eligibility age (which is due to be 66 years old, for everyone from 2020), that the minimum contribution from the employee will rise (depending on their pay scale from 1.5% to 5%) and that the Public Sector Pension would equate to a career average salary upon retirement.
Obviously, people are concerned that the government would want to change the terms and conditions of their pensions. The current chatter on the box is that there will be wide scale public sector strikes towards the end of this month.
I fear that the public sector, if it goes on strike, will not get much sympathy from those in the private sector as the terms being offered by the government may seem reasonable to many in the private sector who don’t have the option of a pension based on career average salary. This of course is added to the recent reporting that not only are Public Sector average paydays higher than the Private Sector (£78 a month better off), but increasing at a faster rate too (0.6% more than Private Sector rates over the past year).
As an aside to all this chatter about employment pension schemes, whether Public or Private sectors, a brief look at the history of pensions. When the State Pension was implemented in the UK in 1948, the male life expectancy was 65 years and 70 years for women. By 2001 for both men and women, that had increased by a decade, and by 2011, to 78 for males and 82 for females. In 1948, the pensionable age was 65 for men and 60 for women [.pdf]. So in reality, a man could expect 5 years of state pension and a women about 10. Despite pension ages increasing the pension age has not meaning that more money is leaving the state to go to pensioners… who are of course, also traditionally more likely to vote in elections which form the Governments who decide the fate of the state pension… turkeys voting for Christmas??
The picture used in this entry was sourced free of charge from Ambro.