Wot no pension?
Tuesday, 26 May 2009 18:46

The BBC has found that half the people in the UK have no pension pot - that should not come as a surprise!

Successive governments, both Labour and Conservative have tinkered with the pensions system in such a way that it has all but collapsed. After 12 years of Labour let's look at the mess they have created.

First Gordon Brown removed investment tax relief from pension funds, taking 5 billion pounds a year out of the pensions system. The knock-on effect of that is the closure of final salary pension schemes and the rush to money-purchase pensions, except for the gold-plated pensions of the civil service and local authority staff. We pay for those and much of our council taxes are going into them - far too much.

Next we have the collapse of investment returns, no-one is shouting it, but with investment returns at almost zero that means that all the money in existing pension funds is generating almost no returns. The pensioners are still having to be paid, and all the time there are more of them taking their pensions. That is making the shortfall of funds worse by the day.

Finally let's look at the way pension plans and additional voluntary contribution plans are sold. Financial advisers get paid by results. They get their commission 'front loaded' which means that when you purchase a pension plan the 'financial advisor' gets their pay immediately plus a small amount each year. The effect of this is that for the first few years of your pension plan all the money has gone to the person that sold it to you.

The net effect is stated very plainly at the end of the offer letter if you take the trouble to read it. There you find a statement something like . . . 'put another way the commission or charges has the effect of reducing the return on your investment from xxx% to yyy%'.

Read that VERY carefully and you'll find that you might as well put your money into a tax free investment such as ISAs where you have total control of your money.

So it's no surprise that people are not saving and Labour government is the big bad wolf on this one!

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