New plans on the horizon for private pensions

Posted in General, Money Saving on Tuesday, April 10th, 2012 at 10:22 by Martyn Shaw.

Changes to private sector pension schemes are currently being contemplated by Steve Webbs, who currently serves as the nation’s Pensions Minister.  The plans put forth by Webbs will require older workers in some cases to work longer before they can draw a fixed income that will continue throughout their retirement years.  As an alternative, older workers could retire with a “pension pot” or fixed sum that must last them through their golden years.  In either imagined scenario, pensioners are likely to need improved debt management skills in order to stretch their means far enough to cover the ordinary expenses of life as well as items such as mortgages or a car loan.

The new plans would have the effect of eliminating once and for all the concept of the “final salary” pension.  However, these types of pensions have largely vanished from the private sector already; they are still available to some workers who hold public sector employment.  The new schemes are currently being called “defined ambition” plans, a turn of phrase that calls to mind the concept of the “defined contribution” plan in which workers know how much they pay in contributions to a pension, but not necessarily how much they will eventually be able to reap from their pension.

According to Webb: “If we can get the framework right, we can make sure that the demise of final salary schemes does not mark the end of certainty in pensions but is replaced by a new model which offers greater flexibility to firms without loading all of the uncertainty on employees.”

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