People are asking “is there a pension crisis in the UK happening right now?” As we can see in the media, such as in the Guardian, when it reported that a number of people in the 50s and early 60s are looking to defer their retirement, things are obviously biting at the moment. There’s the cost of living, inflation, recession, and people are starting to think they should continue saving for a little bit longer or continue working for a little bit longer before retiring.
Before we continue with this discussion, you can learn more from one of our YouTube videos about the UK pension crisis below. This video will provide you with all the insight you need to understand what is happening with the UK pension crisis.
//youtu.be/8kP6lyUipXU
Watch Other UK Pension Transfer Videos!
The Current Situation
Apart from the report above, the other problem that we have, as mentioned in the Financial Times, is that workers are looking to start cutting their contributions to their pension schemes. Workers stated that they are having difficulties providing for their family, which will continue if their salary is not increased. As such, rather than contributing 3-10% for their salary, they’re going to cut that down.
This is certainly happening in the UK with some people thinking it's better for them to not make such large contributions right now to enable them to have a larger take-home pay. This does create potential issues though because they are meant to be saving for the retirement. As a financial advisory firm, we can't tell people whether they should or shouldn't be doing that. It really comes down to someone's independent situation.
Pension Crisis and the UK State Pension
The second point that we’re going to discuss is related to the state pension. Obviously, the state pension is fortunately backed by the UK government, and we think the UK government will continue to ensure that people receive their state pension. However, as all of you will have seen over the past decades, the state pension age has continued to rise. One of the reasons for this is a lack of funding.
In fairness to the UK government, they never really expected people to be living to the age that they are now, and obviously, they're having to fund people's retirement for a much longer period of time than expected.
Pension Crisis in Defined Contribution Pension Schemes
In short, the UK pension crisis can’t really effect Defined Contribution pension schemes. Because Defined Contribution schemes are what they are. You just contribute to your Defined Contribution scheme provider, and normally, you’ll just evaluate the money that is sitting inside your pension pot. Whether it is growing or not, how much your charges are, and the net result. That's what the Defined Contribution pension scheme is. It is that plain and simple.
Which is why, for Defined Contribution pension transfers, you don't legally require a financial adviser. As long as there are no Defined Benefits or safeguarded assets inside your Defined Contribution pension scheme, you can transfer it yourself independently. However, we do not recommend that because doing pension transfers is an absolute nightmare. If you want to try to do it yourself, you will probably end up realising why people like our services and pay for them.
Pension Crisis in Defined Benefit Pension Schemes
Is there a pension crisis relating to Defined Benefit pension schemes? In our professional opinion, having worked in the industry for 10 years, we don't see how it's all going to pan out nice and smoothly for retail clients. With ageing populations, better technology, healthcare, and longer life expectancy, we do not see how it is not going to break with Defined Benefit pension schemes.
Obviously, when you started a Defined Benefit pension scheme, it would have been many years ago. There are a few Defined Benefit pension schemes left, but these are left for Senior Executives in high-powered jobs. Typically speaking, when they set up the Defined Benefit scheme, they did not expect a life expectancy to be going into the 80s or people to be living in their 90s or even reaching 100 years old. As such, the stress that is being placed on those schemes for the long-term assets that they're going to have to pay out, is proving very difficult for them now.
What Does This Mean to You?
As a summary, if you're reading this and thinking, what should I be doing with my pensions, there is one important thing you have to remember: financial planning always comes down to looking at the long-term and what is right for you.
Irrespective of what's going on in the economy, the recession, the UK pension crisis, or the market’s volatility, transferring out of a Defined Benefit pension scheme actually has nothing to do with that. It has everything to do with your transfer suitability. For many people, even if the economy is flying, you still shouldn't transfer out of a Defined Benefit pension scheme. If we're in the middle of a recession, there are certain people that should still transfer out of the Defined Benefit pension scheme and others that shouldn’t.
It really comes down to your own individual situation. Don't get caught up in the noise, short-term market movements, volatility, and recession discussions, because all of those things are not what's going to impact your retirement assets. It's the 20-30 years of portfolio growth inside your Defined Contribution pension scheme, SIPP, or QROPS that matters.
Click the button below to book yourself in for a free initial consultation with one of our regulated and qualified IFAs to understand your situation and establish what is the best financial move for you, for the long-term.
