Current State of Pensions Industries in the United Kingdom - Case Study Example

Pension Pension Introduction Currently, most organizations encourage their employees to save some of their money into different accounts for consumption in future. The money saved can help them satisfy their needs and wants at their old stage age when they will not have enough strength to work. This kind of saving for future use commonly referred to pension. Pension refers to payment that an individual receive after retirement. Pension also regarded as an effective method of saving money and regular source of individual income after the retirement. Planning for pension helps an individual to save and secure some income to use in future consumption. Planning for pension also helps one avoid being over dependence on other or become a liability to other people at their old stage (Vara, 2013, p. 1). A student planning to start a pension for future use should know that there different types of pension one can pay and save the money. These types include state pension where an individual receives the money after retirement in regards to the number of years one has contributed or paid to National Insurance Contributions (NICs). The individual should know that the eligible number of qualifying years one has to attain is eleven years, which generates twenty- five percent of the saving. For one to receive the state pension in full amount, the individual has to build up the pension for thirty years of qualification. An individual can pay the state pension by paying to national insurance contribution or get credit from the government. One can build up pension years by receiving benefits, self-employed, pay full-time or get child benefits (Gov.uk, 2015. p. 1). An individual planning for pension can also save through private pensions that include the work or occupational and stakeholder pension. This involves the arrangements made by employer to give their employees’ pension after their retirement. The benefits for this pension lead to tax relief and extra benefits one can acquire for life insurance or for their dependent when they die. Either an individual can contribute through final salary scheme or money purchased scheme. Final salary scheme on has to base his contribution for pension in regards to the number of years one belong to the scheme and the earning one has. In contrary, purchase scheme depends on contributions one has made together with the amount of money your employer has invested or contributed to the scheme. The scheme can decide to pay you or buy annuity from the insurance company, which will pay you on regular basis after retirement. These schemes belong to the younger employees or students who have a long term for investment and since the employees may change job several times (This is money, 2015, p.1). One can also decide to save for pension through personal pension where an individual buy from the bank, Life Insurance Company or the building societies. This kind of pension belongs to the individual and can continue to pay for the pension even if one moves to another job. One can consider personal pension if self-employed, not working but can afford to pay or do not want to pay occupational scheme. Advantages associated with this kind of pension include tax relief, one can choose to take tax-free lump, other people can pay pension on your behalf or choose fund to invest (Vara, 2013, p. 1). Current State Of Pensions Industries in United Kingdom In United Kingdom, the life expectancy for men adds up to 86 while that of women add up to 88. The current pensioners of pensions mainly come from current working individuals or population by contributing through national insurance contributions. This kind of contributions can also sometimes refer to social contact between old generations and younger generations. As life expectancy in United Kingdom increases, the burden that it poses or places to young generation also increases. As life expectancy improves with the unchanged policy, the extra cost will arise from reduced public spending, higher taxes or from government borrowing. The current state also ensures that increased longevity help in ensuring fairness and sustainability between generations (Hawthorne, 2010, p.5). Pension crisis in the current state of pensions industries in United Kingdom The result of selling pension by the banks, insurance companies and building societies many issues have raised in the recent years in United Kingdom. The government has reformed to pension framework by creating structural conditions for the sale of pension by private pensions that was slow to exploit (Holden et al., 2013, p. 203). These issues lead to the following problems: Immature Regulatory System The system conducted to set down regulations in which the business for investment could take place. The main objective for the system was to protect the private investors from individuals selling financial services and they do not have necessary skills. This people if not taken care of might exploit the investor again for financial. The creation of pension was the main product specified in the act. In the current year, the United Kingdom has no center that has specific responsibilities for detecting, analyzing trends or heeding early warning to enforce or monitor the planning pension strategy (Vara, 2013, p. 1). Payment Of Structured Based Commission The importance of setting regulation in United Kingdom was to acknowledge and maintain high integrity. This encouraged the selling of pension and remuneration after the sale should be commission driven. In recent years the transfer value from the sale has gone to sales representative has a fee (Holden et al., 2013, p. 203). Intended market Development of Personal pension intensions mainly carried out for self-employed and the individuals employed but do not have access to company scheme. The issue has risen when employees who already have their own occupational pension forced and persuaded to leave their scheme and take personal pension. This results to a big problem since no one can risk losing all what they have saved (Holden et al., 2013, p. 203). Confusing advice The returns that an individual achieve relate largely from the pension plans to behavior of their stock market. When the pension has promotion, government does not provide good information on which pension can benefit an individual who want to start a pension plan. The problem also arose to those employees who already have company schemes on what to do. The information given has little impact and the regulator does not consider the product being miss-sold (Hawthorne, 2010, p. 5). Reasons for acknowledging change in pension industries After the budget for the United Kingdom announced in March 2014, several transitional changes follows that has some effect on pension industry. These changes lead to an increased level in trivial commutation (Holden et al., 2013, p. 203). These changes have come across with many reasons, which include: Payment Flexibility These enables individuals belonging to a certain scheme have ease in accessing their pension funds in full amount without having to purchase for annuity. The changes also help in retention of the tax-free lump with the remaining balance after tax saved as income. The new rule will allow individuals to bypass scheme to allow them give their employees increased flexibility. If the scheme provider fails to offer this new flexibility, the member has to transfer to this new arrangement in order for them to take advantage of new pension payment flexibility (Hawthorne, 2010, p. 5). Automatic enrollment The adoption of changes in the pension payment will enables new member to enroll automatically without any barrier to the entrance. These process increases the number of employees who might have the will to enroll and save their money for future. Automatic enrollment enables everyone employed to enroll even if the individual has not attained the state pension age. This enables the employees to increase their life expectancy in insurance company since the may long working period (The good no retirement guide, 2012, p. 36). Engage stakeholders The adoption of change in the pension industries allow them engaged their stakeholder in making decision to which pension scheme to adopt. The stakeholder has a chance to contribute in area concerning their capability and will in making pension payment. By involving stakeholders, they feel appreciated and recognized which lead to improvement and increase in their ability to pay for pension (Holden et al., 2013, p. 203). Increase employer understanding Adoption of change will enable managers obtain the necessary information and educate their employees about the new duties and consequences if the fail to comply. This enables employers concentrate on their specific duties to enroll their employees and register them automatically. It saves managers time has they already have information on what they have to do and improve the employees enrollment level to contribute towards their pension (Great, 2013, p. 17). Enables compliance The introduction of change in the pension industries enables the employer identify potential area or instances where employee may fail to comply. This gives them a chance to take necessary steps and measure to bring the employee back to the track. This also gives managers chance to interact with them and identify the various reasons that lead them not to cooperate and take measures to remedy the problem. The interaction between employer and employees adds value to the impact of contribution towards pension after giving some advice. This help in increasing the number of new member to enroll toward the pension for future use (Great, 2013, p. 17). Benefits Perceived In Acknowledging Change in Pension Industries Freedom of paying tax The introduction of new change to paying pension has huge benefits to individuals who build large pension pots. The building of large pots saves them from paying tax during the withdrawal of their amount that they have contributed. These results depend from employee personal allowance and any other earning that contribute a lot to pension leading to swallowing of tax. This release from paying tax encourages many members to participate in investing in many areas in order for them to have sources for pension and reduce tax (The good no retirement guide, 2012, p. 36). Increased market The introduction of change leads to expansion of pension market to many insurance companies. This results due to freedom of entry to the pension area that allows many individuals to participate in contributing for future use. It enables the company offering pension sales increase their market thus benefiting from the profit they gain after sale. The pensions industries also attract many individuals to save their amount for future as there no barrier for entry. This freedom of entry brought about by automatic enrollment regardless of the individual has attained the state pension age or not (Great, 2013, p. 17). Increase of life expectancy The adoption of change leads to an increase in life expectancy of an individual since young employee has freedom of moving from one job to another. This enables the employees to gather more resources for their pension that contribute to increase in life expectancy. The freedom of entry into the state pension enables young individual prolong their duration for working that result to high saving. When individual has long period of saving, it leads to individual having a lot for the future use. This also enables the pension industries invest a lot in individuals hence raising their market (Hawthorne, 2010, p. 5). Increased amount for saving The adoption of change in the procedure for acquiring pension for individuals enables them to save a lot for future use. Change in procedure means that an individual can engage in saving for his pension at any age and the young the individual the more the saving. As long as an individual has work, means that one becomes eligible for contributing towards the future pension gain. The younger the person the more probable to save enough for future that why the new rule has brought more change towards saving (The good no retirement guide, 2012, p. 36). Increased knowledge The introduction of new rules about the pension policy gives an individual opportunity to gather more information about the pension benefits. The more an individual obtain information about pension an individual gets to know the purpose if investing for future. This enables employee increase their knowledge about the pension and can encourage other to contribute towards the same. The knowledge gained also helps one to know which type of pension could suit him in regards to the income and the level of employment. On has to apply for the pension, which he can manage and attain the maximum saving that individual, requires for future use (Vara, 2013, p. 1). Source of help and information about pension An individual interested in finding information about pension can get it from various sources. These sources will guide the individual accordingly and direct them on how to carry on the procedure for contributing toward saving for future income. They will also guide the individual on the best scheme of pension to adopt which has greater benefits to them. The information available help the individual weigh their potential and contribute towards what they can afford according to their level of income. This sources of help and information includes (The good no retirement guide, 2012, p. 36). Scheme trustees, pension provider or administrator An individual can obtain the necessary information from the scheme trustees who guide them on the best scheme to apply. They will give them the benefits for using certain scheme that will act as cornerstone for their start. Pension provider can also help and give information to a newly employee who want to start the contribution towards the achievement of better pension in future. The system administrator also provides necessary information to guide the individual as they plan for the pension. They should encourage them to contribute towards the same since the pension received helps not to become a burden to the others when they get old (Great, 2013, p. 17). Independent financial adviser An individual can obtain information regarding the distribution of the income one obtains and the pension. The financial adviser should guide the member on the best scheme to use in relation to personal allowances and the level of income. An individual should know the best scheme that suit, fit him/her, and make possible contribution towards saving for future use (Vara, 2013, p. 1). Money advice service This involves a service that deal with money and give necessary guidance to the individuals interested in saving for future consumption. They should help an individual in areas regarding how to spend money and which to save for future use. The individual should then know which portion of the income goes to savings and the one for spending. The advice given should act as a controller and director to the new member in regards to distribution of the income available (This is money, 2015, p. 1). Government United Kingdom An individual can obtain the information required from the websites of the public government about the workplace pension. This information should guide the individual on which scheme of pension on suits since the information about each scheme already in details. The website also directs the individual on where to get the pension one requires and whom to consult for clarification. With this information, an individual can know what to do in order to get contribution for future use inform of pension (The good no retirement guide, 2012, p. 36). The pension advisory service It belongs to an independent non-profit organization that makes and provides advice, free information and guidance on matters concerning pensions to individual. They also provide state, personal, stakeholder scheme and company information about the pension available and means of acquiring that pension by an individual. The organization also helps any person or member from public who has a problem, dispute or complaint with private pension or occupational pension arrangement. The only thing that this people do not deal with complaints, problems or disputes that relate to state. They offer free services to individuals so has to encourage them in making proper decision (Vara, 2013, p. 1). Pension regulator The actual location for this regulator is in United Kingdom. They provide basic information to employees interested in contributing for their savings. They ensure that the information required about pension available on their website to make it easier for members access. This information will help an individual select the best scheme for their pension and the one affordable to them (Great, 2013, p. 17). Conclusion In conclusion, every individual should have a concern to enroll for pension that account for the source of income to sustain individuals life after retirement. Individuals should understand the need for having pension after on ceases from doing job and it help one to continue with life after retirement. Members as to make an effort in knowing the different types of pension in order to know the best that suits them base it on their income. These pensions have various categories, which include state pension, occasional pension and personal pension. The advice to new member interested in contributing towards saving for future should take a pension scheme according to his pocket. One should also know that there many sources to obtain help and information about pension like pension advisory service and many others has discussed. The individual should seek for the best information to direct and guide while making decision about pension scheme. Bibliography Burkhauser, R. 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