The UK Private and Occupational Pensions Arena - Case Study Example

 Personal Financial Planning - Pensions The classical financial planning schemes that were developed at the beginning of the 20th century are proving to be inefficient in the present due to the changes that have taken place in a social and financial plan in the last 40 years. One of the most important issues is pensions because they are affected by the changes that take place in the demographical growth of the population, funding pressures, changed work patterns or mortality projections. We are going to see that in the not too distant future there will no longer be any such thing as a ‘’normal retirement date’’, paying attention to the development in the UK private and occupational pensions arena. . Pensions are really helpful for the person whose spouse has been expired and to bear life expenses he or she needs finncial support from government and other agencies where their spouse had worked. Every one needs perfection in his life and it’s their right to have a good sum of fund for their expenses. People usually prefer government jobs as they know these jobs will safe them and their spouse’s life as well after their death. Usually, people prefer public sector and always try to get jobs in public sector just because of its benefits. A pension is a funds arrangement to support people with an amount when they can no longer bear their expense and cannot recieve a regular income from jobs. Pensions are not mean to be confused with regular pay; the earlier is paid in form of installments, while the rest is paid in total. During the last years the UK government has been building a plan to change the retirement age and as the public sector deals with the issues of both sectors with the economical crisis as well as the demographic changes of an ever ageing population this changes must be made, considering the fact that all the industrialized countries are taking this measures to insure the sustainability of the financial and pension system. If the retirement period is not increased in the UK they will face a raise in the number of retirees compared to workers, by 2050 there will be from four employees for one retired the output will be two to one (Bean & Jonathan, 2007). Also the life expectancy has risen from 70 years in 1950 to 80 years, which shows an average person will have a pension for about 15 years in the case of men and 20 for women considering the retirement age of 65 for males and 60 for females. The UK pension system is made up of three basic pillars ( which have the goal to separate the major objectives of pension plans into Pillar 1 – A standardized, state-run pension system; Pillar 2 – A funded system that employees and employers get into and Pillar 3 – Voluntary private funded accounts), as below: Basic State Pension is the first pillar.  Occupational pension schemes for public are referred by the second pillar. Pensioners’ individual savings are referred by third pillar. The figures represent full State Pension entitlement and to above ones are concluded as other advantages (such as widow’s pension, income linked advantages or disability benefits). The chart gives a clear idea to us that the Basic State Pension declares around sixty percent of earnings. Therefore, differences to this pillar can go to major effects on the earning of both the current and future retirees. Source: The Pensioners’ Incomes Series 2006/07, Department for Work and Pensions The UK government has established up an Independent Pension Commission that will publish an interim report with improvements for new developments to public service pension schemes. Changes to the Basic State Pension: Increase in the retirement age: this is the best period to get selected for a full State Pension. According to the previous government rules, the objective was to increase the retirement period for all employees to 66 by 2024, and to 68 by 2046. Altough, plans are being in progress to implement that improvement much faster, with the retirement period rising up to 66 years by 2016. Linking pensions to earnings: According to new changes, govenrment agencies will declare new pensions every year. The new procedures will comprised of increasing the State Pension by average rate rises, rates, or a 2.5 per cent rise, whichever is greater. As the following graph shows the RPI has been increasing the CPI over the decade. The chart demostrates that in last twenty years Source: ONS This recommendation promotes more easy retirement chances and encourages employees to work extra years (argest U.S. pension plans, 2009). Changes to public occupational schemes: The government will use the suggestions of the Independent Pensions Committee to implement a greater range of differences; it has clearly mentioned that it says to focus some measures similar to those listed above for the Basic State Pension. Moreover, these differences, some government and third-sector packages have already initiated consultations to develop further improvements: BBC scheme The pension fund people have risen 90 days consultation duration on the possible improvments to the package. Under current scenario employers get a clear benefit (DB) pension that based on simple salary stages for ones who joined before 2006 and on a field for those who came after. The updation has currently suggested as the following: new members additions in the schemes, Cntribution (DC) scheme for new clients, An increment on pensionable pay of 1 per cent. MPs scheme Under current scenario, Members of Parliament get a clear benefit (DB) pension relied on final salary stages. The financial structure of the scheme, a report on Senior Salaries proposed the following improvements: Retirement age increment upto 68 years, Actual rate increment, final fixed salary to career-average levels swapping. Universities Superannuation Scheme (USS) The programme is designed for senior administrative staff and academic staff. Recently, the scheme awards a defined benefit (DB) pension relied on final salary levels. The scheme poses some genuine provisions such as early retirement from age 55 at a lower benefit (Princeton WordNet, 2008). The suggested improvments are the following: Minimum retirement age to 65 for all employees increment, Career average pension for new arrivals swapping, 7.5 per cent increment. "Personal Account" pensions From 2012, all employees not in a suitable location pension will be electronically-enrolled in a personal account (Shulman, 1999). You can figure out if you desire to, but the state authority has suggested making enrolment automatic to apprectiate more people to use the new system (Ann & Foster, 1996). You will be asked to parcipate to par a minimum of 4% of your earnings - which will be matched by your employer - making a total of 8% each year. You can donate more if you desire, up to a yearly contribution cap (limit) of £3,600. This scale will rise in line with incomes each year, so must effectively remain stable. Personal account pensions will be focused specially at people aged 22-65, earning over £5,000 per year and those are not contributing in a pension scheme considering at least a 3% employer participation. The government says that 10 million people recently come into this phase (Sandhu & Harminder, 2009). The personal account system will be entirely-administered by a strong board who will take actions how the finance is fixed and so on. Although one don't have the same line of options as with a regular pension, the lower fees and greater simplicity must make the system more useful and accessible, specifically to people on lower earnings. As another option you can purchase an annuity, which is a regular earning declared for life for which you trade the money in your pension amont, which you could not recover. You don't need to get an annuity suddenly you retire. You can stop till you're 75 when you have to purchase one by law. One can purchase various forms of annuity such as an inflation proof annuity or a pension that will keep supporting your partner after death. You can also get a larger annuity if has a severe disease or is a chain smoker because he is expected to live a less life than average. There is also another option: some may opt for an "income draw down", whereby one can take money painlessly from spouse; s pension fund and purchase an annuity later on (Unfunded Pension Plans, 2009). The payout of a pension is more likely the insurance agency having a loan payment. When you place your money in the annuity, the right to access any principal disappears and the principal becomes a stream of payments. The following tables’ demostares the conventional rates from 2008 verified to 2007. It relied on a basic pension fund of £133,333 and after the tax deduction has been taken, £100,000 is used to purchase an annuity. The change between the two years is demostrated in pounds sterling per annum. The percentage is the difference from the annuity rate paid last year. SINGLE, level annuity Male Rate Change Female Rate Change   55 £269 4.6%     60 £178 2.8%     65 £281 3.9%     70 £379 4.6%     74 £378 4.0%     55 £193 3.4%     60 £265 4.3%     65 £355 5.3%     70 £391 5.2%     74 £423 4.9%   JOINT, level annuity, 50% female spouse Joint Rate Change   Male 55 and Female 55 £266 4.8%     Male 60 and Female 60 £245 4.1%     Male 65 and Female 65 £289 4.4%     Male 70 and Female 70 £400 5.4%     Male 74 and Female 74 £451 5.5%   Annuity table - the annuity rate changes are based on £100,000 in July 2008 compared to July 2007. KEY - Annuity Rates Changes   Latest rates higher than 12 months ago   Latest rates lower than 12 months ago   £ Difference in pounds sterling (per annum)   % Percentage change from 12 months ago   nc No Change Recent annuity charges are at the least levels for the previous 40 years. Usually people may consider that this means pensions rates are likely to increase in the future (State Pension, 2009). However, the ammunity money paid from annuities is relied on a number of economic factors, and these guides that annuity rates are expected to remain where they are in morning or fall in the future. In a nut shell, the variance proposed to the Basic State Pension and to other government sector occupational schemes says that most of the factors currently being disputed are going to be significant to keep the UK in a healthy financial state. Many of these differences are in queue with the effort to adjust the cost of releasing pensions to the fact that we are surviving longer. Altough, the focus of the public sector should not only be on the financial domain but also on the advantages released to the people which is becoming older and older - assuming that a very few people are fulfilling tax responsibilities and National Insurance and most of the people are getting state pensions. Above all, an great number of employees do not have any type of retirement flexibilities. The government computes that minimum 7 million people are not saving good share for their pension and that 10 million young people aged 22-65 are not activeley taking part in a pension scheme with a lowest figure of 3% employer participation. It's these youngsters that form the objective for the major changes that will be introduced and we have to bear the reality that soon there will not be a fixed date for retirement, bearing in mind that a rise in work force is required and that we must increase the age until one can work. References Ann C., Foster. (1996),Early Retirement Provisions in Defined Benefit Pension Plans, retirved: 7-August-2010: http://www.bls.gov/opub/cwc/archive/winter1996art3.pdf. Bean, Jonathan., (2007). “Three Big Risks For Older Adults: Walking, Climbing Stairs and Rising from a Chair - Evidence-based Rehabilitative Care for Older Adults.” CIMIT Forum. November 6. Gary A. Shulman, (1999), Qualified Domestic Relations Order Handbook By p.199-200 Published by: Aspen Publishers Online, ISBN 0735506655, ISBN 9780735506657. Largest U.S. pension plans' assets fall $217 billion short, short_N.htm, USA Today, citing a report by Watson Wyatt, 1 Retireved: 7-August-2010:http://www.usatoday.com/money/perfi/retirement/2009-03-11-pension-plan-assets-short_N.htm, USA Today, citing a report by Watson Wyatt, 10 March 2009. Princeton WordNet, (2008), Pensions, Retireved: 7-August-2010: http://wordnetweb.princeton.edu/perl/webwn?s=superannuation, viewed 24 December 2008. Unfunded Pension Plans" OECD Glossary of Statistical Terms, retrieved 7-August 2010. State Pension, (2009), State Pension, retirved: 7-August-2010:http://www.direct.gov.uk/en/Pensionsandretirementplanning/StatePension/StatePensionforecast/DG_10014008. Sandhu, Harminder., (2009). "Hyponatremia associated with large-bone fracture in elderly patients." Int Urol Nephrol 41:733-737, Read More