Wednesday, September 27, 2006

Pension pay outs halved while bosses get fat bonuses

We all know about the Pensions scandal, and how people have been led away into private schemes under false pretences .. now finding out their pensions aren't good enough to keep them as was promised all those years ago ..

So much then, for Edinburgh's fine establishment of Financial Services - who boast they bring Commerce to the City, increasing the property market, pricing all the locals out of their areas and making everyone a slave to mortgages & Bank debt..

Read on for the article, from the Scotsman at :

Personal pension pay-outs halved

* Cash received from plans dramatically cut in last ten years, says study
* Experts blame falling interest rates and government policy
* Experts warn the government will have to increase state pensions

Key quote "Until six or seven years ago, very generous bonuses were paid to with-profits policy holders. These bonuses have been cut to virtually nothing. This, combined with lower stock market levels in 2006 than 1996, are behind the decline." - Richard Eagling

THE depth of Britain's pension crisis has been exposed by new figures that show personal pension pay-outs have halved in the past decade, making it even harder for savers to achieve a comfortable retirement.

Experts said falling interest and inflation rates, cuts in bonus payments and government fiscal policy were responsible for the fall in pay-outs which has affected millions of pension savers.

The survey, by Moneyfacts, an independent provider of personal finance information, comes amid a burgeoning pensions crisis, with companies shutting their final salary schemes and experts warning that the government will have to substantially increase state pensions.

According to the Association of British Insurers, there were 22.7 million pension policies in place in 2004, up from 20.1 million eight years before.

Yesterday's research looked at both with-profits pensions, the value of which depends on stock market performance and profit pay-outs from the insurance companies, and unit-linked pensions, which are tied entirely to the value of equities. The findings were based on figures supplied by the main pension providers.

The figures showed that a man of 65 retiring in July 1996 having contributed a gross annual premium of £500 into a personal pension for 15 years would, on average, have built up a with-profits pension fund worth £25,840. A unit-linked fund would have provided him with £19,709.

Yet, the same individual retiring today, after paying identical annual premiums, would be left cursing their bad luck.

The average with-profits pension would offer only £12,306 and the average unit-linked pension just £11,696. This represents a 52 per cent drop in the average with-profits pension pay-out over the past decade, and a 40 per cent decrease in the average unit-linked pension.

Over the longer term, the situation is even worse. The average 20-year with-profits pension pay-out has fallen 57 per cent, from £61,592 in 1996 to £26,168 today; the average 25-year value is down 53 per cent, from £120,239 to £55,992.

Richard Eagling, the editor of Investment, Life and Pensions Moneyfacts, said: "Until six or seven years ago, very generous bonuses were paid to with-profits policy holders. These bonuses have been cut to virtually nothing. This, combined with lower stock market levels in 2006 than 1996, are behind the decline."

Moneyfacts found the challenge facing today's pension savers was even tougher, given the continuing fall in annuity rates - the annual income a pensioner can expect from their savings.

In July 1996, a pension fund of £100,000 would have bought a male aged 65 an annual annuity of £11,390 if he had opted for the best available standard annuity.

Today, the best standard annuity would produce an annual income of only £6,860 from the same pension pot - a fall of almost 40 per cent.

Moneyfacts' findings should be considered in the context of the changing UK economy. Inflation was rampant for most of the 1970s and 1980s, forcing up interest rates paid to investors. Even in the limited period of 1986 to 1996, inflation averaged 4.9 per cent a year. But in the ten years to August 2006, the average inflation figure has come down to 2.6 per cent.

In 1996, UK long-term interest rates averaged 7.82 per cent. The corresponding figure for August this year was 4.64 per cent.

Over-reliance on equities by many of the with-profits pension funds also brought big losses between 2001 and 2002-3, and this encouraged some funds to sell equities at the trough of the bear market in early 2003, thus missing out on the subsequent stock market recovery.

In hindsight, funds also under- invested in property, which has enjoyed high returns in recent years.

The figures highlight the variability of investment returns over different periods and cycles. The lower returns do not invalidate saving, as the pensioner is still showing a huge gain on the £500 a year gross invested for their retirement.

However, the findings do underline the danger of projecting high inflation-driven returns way into the future, and they highlight the need for investors to diversify their assets across a range of different classes.

The decision by Gordon Brown, the Chancellor, to dip into dividend income from pension funds has also hit returns.

And the situation facing many pension savers today would have been even more desperate, had it not been for the recent stock market revival.

Mr Eagling said: "Today's pensioners are facing a longer retirement, with pension pots half the size of those a decade ago. These figures should serve as a powerful reminder that securing a comfortable retirement will only be possible for those individuals who actively monitor and manage their own pension provision."

Steve Potter, director of the Pensions Partnership, an advisory service, said: "While the drop in returns is significant, in real terms, if they were adjusted in line with inflation, the fall would be much less drastic."
So you are facing a reduced cash pot - what do you do about it?

PEOPLE concerned about their pension funds should take steps to boost their retirement income by ensuring they have a diversified portfolio of investments and regularly reviewing it, experts said yesterday.

Tom Munro, director of IFA firm Tom Munro Financial Solutions, said: "Although the Moneyfacts survey highlights the poor returns seen in recent years, it has to be remembered, the average returns used are not truly representative of the well-diversified pension portfolio."

"I constantly come across individuals, who in the main have average performing with-profit and unit-linked funds and are unaware that the pensions industry has moved on a great deal in recent years.

"Advances in technology allow a number of providers and fund supermarkets to offer a comprehensive range of top-performing funds from most of the UK's leading investment houses. The IFA is able to risk profile their clients, then cherry-pick from the best funds, spread across all investment sectors and geographical areas to specifically meet the clients investment objectives.

"Clients left in average funds over many years will always encounter shortfalls as highlighted in the Moneyfacts survey," he said.

Jason Hemmings, director of Albannach Financial Management, said: "Because of affordability, the average age of people starting a pension is now over 30. The government is doing very little to help and the employer has shifted the responsibility for funding retirement on to the employee. It's up to the individual to take responsibility for saving. People have traditionally been complacent about pension investment but they should get advice to regularly review their strategy."

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