I hope you have all had a good Easter and are starting to feel more positive after the good news we have been getting lately. Unfortunately, pensions haven't gotten the message, as the PPF has just announced a recording breaking £253bn pension deficit for March, attributed mainly to the decline in gilt yields.
I have also learnt of another astounding statistic this week. Since 1995, the UK government has passed 700 pieces of pension legislation.
To put that in context, that is one a week.
Government pensions deficit and the changes made
Whilst I am glad someone seems to be doing some sort of work, it is worrying that our pension system is in such a state and what is worse – none of those changes seem to have improved anything or are expected to do so.
Take for example the introduction of the qualifying workplace pension scheme, a low-cost defined contribution occupational pension in 2012. This will automatically enrol all eligible employees and will require employers to contribute a minimum of 3% to employee's pensions on a band of earnings £5,035 to £33,540, with the employee contributing 4% and receiving 1% from the government in the form of tax relief. However, because of the way it is calculated, contribution rates will be much lower than the projected 8% thus having pension deficit.
Moreover, as this is a voluntary contribution scheme, many will ‘opt-out' with up to a possible six million people out of the ten million eligible taking this option. This could be an advantage to those who could lose their means-tested support benefits in old age by joining this scheme but means that they will fail to get the additional 3% from their employer.
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It will be a very difficult choice for some between a low-yield pension or the equivalent of lower pay. And all this makes me wonder if the government actually did their homework before they decided to implement this scheme.
And their inability to do their research accurately makes me question if the government actually knows what it is doing regarding pension deficit and by the large quantity of changes in the law made, it suggests not.
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