Keep tabs on what's happening with your pension
"The Resolution Foundation believes that over 800,000 workers, that's nearly one in 20 of eligible employees, either haven't been auto-enrolled, or are receiving less in employer contributions than they should, or have been quietly nudged by their employer to opt back out of the pension scheme, once they'd been put in."
DID you know that you can fit 100 million coronaviruses on to a pinhead? Scientists say you can’t even spot them under a microscope.
It’s amazing to think that something so infinitesimally tiny could bring a whole section of our financial economy to its knees.
But that’s what’s been happening this year in the pensions sector, and it underlines yet again that we really need to keep tabs on what is happening now and in the near future, because it will shape the quality of our retirement.
Normally when we write in this column about growing pressure on pension incomes, we’re talking about the basic state pension. However, today the focus is on workplace pension schemes.
Since 2012, employers have been required to auto-enrol all eligible employees into a pension scheme, and to top up their workers’ savings with employer contributions.
However, the pensions researcher The Resolution Foundation believes that over 800,000 workers, that’s nearly one in 20 of eligible employees, either haven’t been auto-enrolled, or are receiving less in employer contributions than they should, or have been quietly nudged by their employer to opt back out of the pension scheme, once they’d been put in.
Pensions ombudsman Antony Arter recently predicted this, when he warned a parliamentary committee the crisis could lead smaller employers to try to cut costs by persuading workers to opt out in this way. Former pensions minister Steve Webb called this ‘the quiet word by the water cooler’, and while such quiet words blatantly contravene the rules, he conceded they are very hard to detect or prove.
All sectors of industry, in particular high street retail, transportation and leisure, have been hit hard by the virus pandemic and the months of lockdown, and many companies are now struggling to meet their pension commitments. Meanwhile the pension managers, those companies who manage our pension schemes, have reported a marked increase in the number of companies that have missed or skipped a few payments this year.
Pension companies don’t just take billions of pounds of our pension savings and stash them under an oversized mattress to keep them safe. They are invested onward, mainly into the stock markets, where returns from equities in particular are well down since the arrival of the virus.
Interest rates have been flat on their belly in recent years as well, as central banks try to keep us spending and stimulate the economy, and this too has made it harder for pension schemes to grow our money.
Meanwhile, many people in their 50s who have been laid off due to the pandemic are now tempted to raid their pension savings, by drawing down a chunk of their pension just to maintain their living standards. This could put a serious dent in their prospects of having a comfortable retirement.
Look what’s happened in Australia, where the government has responded to the virus by allowing people early access to their superannuation pensions. Over 600,000 people have cleaned out their savings altogether, and the majority of those were under 35. What does the future hold for them? Two main outcomes, both bad: either retiring on less, or working on five or ten years longer when you’d really hoped to be sitting at the beach with a few tinnies, popping another shrimp on the barbie.
Meanwhile back here in the UK, long-standing problems inherent in the pensions sector have now been forced into the sunlight by the virus crisis.
Experts are drawing uncomfortable conclusions - and it’s not rocket science. They say we need to be saving more, because it’s not a ‘loaves and fishes’ situation – there simply may not be enough money in some pension schemes to meet guarantees and commitments.
Steve Webb’s company has said that if several giant pension schemes were to get into real difficulties in a short space of time, the Pension Protection Fund, which assists schemes in trouble, could itself be in crisis.
Worryingly, they believe the government should give schemes a ‘last resort’ option of revising some pension payments downwards, at a time when the cost of an adequate retirement lifestyle is spiralling upwards.
It’s one of those situations where we financial advisers wish we had a crystal ball, to see how things will develop.
What we can see, though, is that in uncertain times like today, thinking ahead is more crucial than ever.
Unless you have a crystal ball, remember our motto ‘Life’s better with a Plan.’ Could today be a good time for us to help you make one?
Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com