An­other one bites the dust: how safe can a pen­sion be?

The Daily Telegraph - Your Money - - FRONT PAGE -

Mil­lions of peo­ple save via com­pany and per­sonal pen­sion schemes. But lev­els of pro­tec­tion vary, re­ports Sam Brod­beck

The col­lapse of yet an­other pen­sion com­pany last week has thrown the se­cu­rity of Bri­tain’s pen­sion sys­tem back into the spot­light. Ad­min­is­tra­tors ap­pointed to find a buyer for The Life­time Sipp Com­pany’s pen­sion as­sets have urged in­vestors with funds at the failed firm to con­tact fi­nan­cial ad­vis­ers.

The Life­time Sipp Com­pany is one of hun­dreds of small firms of­fer­ing self-in­vested per­sonal pen­sions (Sipps). These al­low in­vestors to put their cash into a far wider range of as­sets than is al­lowed through schemes op­er­ated by em­ploy­ers.

Yet stricter ret­ro­spec­tive rules over how much providers must hold in re­serve against so-called “non-stan­dard” as­sets, such as prop­erty and un­listed shares, have pushed some firms to the brink.

Savers into other types of pen­sion schemes are also wary, fol­low­ing the high-profile col­lapse of BHS and Car­il­lion and the Bri­tish Steel scan­dal, in which rogue ad­vis­ers con­vinced work­ers to give up gold-plated pen­sions.

De­spite new pro­tec­tions, the mem­ory of Robert Maxwell’s plun­der­ing of the Daily Mir­ror pen­sion fund a quar­ter of a cen­tury ago colours many peo­ple’s view of the safety of pen­sion sav­ings.

Mar­tin Til­ley, of Den­tons, the pen­sion firm, said: “Ev­ery­thing com­ing out at the mo­ment is bad news. Some peo­ple will be pan­ick­ing and what type of pen­sion they have de­ter­mines what they need to worry about.” The vast ma­jor­ity of money saved into pen­sions is built up through em­ploy­ers, who in most cases match or ex­ceed the con­tri­bu­tions made by in­di­vid­ual savers.

In the past, most com­pany schemes op­er­ated on a “fi­nal salary” or “de­fined ben­e­fit” ba­sis. That means in­come in re­tire­ment is based on wage and length of ser­vice – and must be in­creased by in­fla­tion to en­sure pen­sion­ers can keep up with the ris­ing cost of liv­ing.

Vi­tal tax cred­its slashed by Tony Blair’s gov­ern­ment, the fi­nan­cial cri­sis and ris­ing longevity forced al­most all schemes run by pri­vate sec­tor firms to close to new mem­bers. De­spite clo­sures, more than 10 mil­lion peo­ple still rely on the in­come from these schemes to fund their re­tire­ment.

As a re­sult of the Maxwell scan­dal, the Gov­ern­ment in­tro­duced a raft of re­forms, lead­ing to the estab­lish­ment of the Pen­sion Pro­tec­tion Fund in 2005. This lifeboat fund scoops up mem­bers of schemes where the spon­sor­ing com­pany has gone bust.

If your scheme falls into the PPF and you are al­ready re­tired, your pen­sion will be paid at ex­actly the same level. If you are yet to re­tire, pay­ments are capped at 90pc of the promised rate.

How­ever, high earn­ers who are not yet re­tired face sub­stan­tially big­ger losses. There is also an over­all cap on com­pen­sa­tion, cur­rently £39,006 for a 65-year-old, or £35,106 where the 90pc cap ap­plies. Savers with long ser­vice get spe­cial pro­tec­tion: the cap is in­creased by 3pc for each full year of ser­vice above 20 years, up to a max­i­mum of dou­ble the usual cap.

Last year, the Pen­sion and Life­time Sav­ings As­so­ci­a­tion, the trade as­so­ci­a­tion for this type of pen­sion, warned that more than three mil­lion savers in the weak­est schemes only have a “50/50” chance of re­ceiv­ing the full value of the pen­sions. While the PPF’s own in­vest­ments more than match its li­a­bil­i­ties at the mo­ment, ex­perts fear it could have to cut com­pen­sa­tion in the fu­ture if it were forced to take on the schemes of sev­eral large em­ploy­ers at once.

To­day’s work­ers are far more likely to be re­ly­ing on sav­ings from

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