The controversy surrounding pensions in the UK seems never ending at the moment. If it’s not a new pension scheme, it’s pension cuts, and all this change and uncertainty is leaving most people feeling unnerved about their future. Now the government have announced even more changes to the scheme, it’s got us thinking. In reality, just how well guarded are our pension pots?
Cap on Fees for Overseeing Pension Funds
The UK government has recently pledged to set a legal limit on the amount fund managers can charge for overseeing your pension pot. At the moment, up to three quarters of a pensioner’s fund can go towards paying for hidden charges, leaving you with just a quarter of the money you’ve worked so hard to save. Pensions Minister Steve Webb believes that a cap on fees will give ‘absolute confidence’ to those saving for their pensions, as they’ll have a much better idea of the sum they can expect to receive upon their retirement.
What this means for you: In effect, this should ensure that your pension pot is guarded from hidden costs, as there will be a legal limit on what fund managers can charge you, making your retirement fund much safer.
Employers Going Bust
It used to be the case that if the company you worked for went bust, you’d lose your entire pension pot, as well as your job and annual income. Thankfully, the Pension Protection Fund that was established in 2005 means that nobody will lose their entire pension if their company goes bust, but they may not get it in its entirety, so it’s still not completely safe. Many high earners could lose out here, so the Pension Protection Fund has by no means solved everything.
What this means for you: If you have a low to middle income and your company goes bust, your pension should be well guarded. However, high earners could receive a significantly smaller pension pot if they’re unfortunate enough to find that their company has gone into administration, so it’s not a perfect solution.
Annuities Dependant on Struggling Stock Markets
Third way or linked annuities allow pensioners to hand over their pension fund to be invested in the stock market, and pensioners take an income from this. The trouble is, some pensioners are finding that their pension fund is linked to financially troubled companies. The risk of losing some of your money is relatively small though, as your pension will be spread across a variety of investment banks, meaning if one is having trouble, you’re unlikely to see the repercussions.
What this means for you: Linked annuities come at a cost, so only a couple of thousand people have currently bought them in the UK. If you’re thinking about purchasing an annuity, it’s worth remembering that a guarantee is only as good as its guarantor. Your pension is never guaranteed to be absolutely safe, no matter what you choose to do with it, so it’s all about weighing up what’s best for you.