Contact

News & Insights

What is an unfunded pension and might you have one?

Pensiondeficit 1 - Blacktower Financial Management Eu

Those of you lucky enough (or so we thought) to have accumulated a pension pot over your working life time – with the promise  of a good pension upon reaching 60 (such as the equivalent of two thirds of your final salary) may be in for a shock.

Just like endowments, when these arrangements were devised by company pension planners they thought that rates of returns in the region of 9 and 10% per annum would continue forever. History had told us otherwise and, accordingly, these ‘promises to pay’, are turning out to be hollow.  The pension companies, whilst budgeting for the aforementioned annual returns, have found it increasingly difficult to obtain just a 5% annual return and have struggled for many years.  This means that there is not enough in the pot to pay the promised amount – and this is what is called an “unfunded pension”.  The ‘promise to pay’ is called a “Defined Benefit Pension”.

Actuarial company Lane Clark & Peacock analysed information contained in the annual reports and accounts of FTSE 100 businesses, with Defined Benefit Pension shortfalls disclosed at 56 companies.

You can see, therefore, that this pension shortfall applies to 56% of the wealthiest businesses in the UK, so perhaps it follows that the problem is even bigger for the less wealthy companies i.e. the companies that you worked for – did anyone reading this work for BHS?  As it happens, BT (British Telecom) also have a pension deficit – but I don’t wish to worry anyone, so I will counter that by saying that it has also been stated that the BT balance sheet is strong enough to fund the pension deficit but shareholders will lose out.

What can you do?

Well, it’s never an easy decision but one idea is to disentangle your pension pot from the main pot by transferring it to a QROPS (Qualified Recognised Overseas Pension Scheme) or Sipp (Self Invested Personal Pension). That way, your money becomes ring-fenced for you, normally with many less conditions and rules on how you can spend your own money, including leaving all of it to your heirs.

If you think whatever you have been offered by your pension firm is derisory, contact me and I can help you come to the right decision whilst advising you of your options.

We are the professionals with 30 years experience; why would you risk going anywhere else (and this includes your local bank)?

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

Other News

Will I outlive my retirement savings?

Golden Piggy BankThe Office for National Statistics puts UK life expectancy at 79.4 years for men and 83.1 years for women. Today, a 65-year-old man can expect to live for 18.5 more years, while a woman would typically have 21 more years left in her. Of course, life expectancies are averages – so this won’t hold true for everyone. Your lifestyle, diet, genetic make-up and wealth could all affect how long you will actually live for, with luck also playing a big role. Obviously, living a longer life is a good thing in theory, but from a retirement savings perspective, it can pose a real challenge. In fact, 60% of baby boomers admitted in a recent Allianz study that they’re more fearful of outliving their savings than of dying. This sentiment is shared by 43% of workers surveyed by Transamerica, who say that outliving their savings is their greatest retirement-related fear.

Read More

NEWS WRAP – Approaching AI in the Financial Advice Industry

HandshakeAre we on the cusp of a brave new world of robo-advisers in the financial advice industry?

If the latest poll from artificial intelligence (AI) innovator Rainbird is anything to go by*, the answer is “yes”, with the company predicting the emergence of “meaningful” AI platforms, which, it says, will become integral to the financial advice market over the coming years.

Read More

Select your country

Please select your country of residence so we can provide you with the most relevant information: