Search The Web

Custom Search

Thursday 30 June 2011

Pensions: A Personal Story.

Well, today is the day that, in the UK at least, pensions are the topic on the tip of everybodys tongue.

Several public sector unions are striking today over proposed changes to their pension arrangements.
I'll admit now that any tampering with my own pension would have been the one thing that would have encouraged me to strike. Striking over a pay increase has always struck me as being pretty counter productive, as you rarely get back the money that you lost when striking & believe me i know, because i've done it!
But, striking in the cause of your pension is a different matter entirely.

Pensions have become a very emotive issue recently and the change in attitudes can be partly traced back to the banking crisis of a few years ago. Yes, pension issues were being talked about before that and holes in some pension funds were being spotted. But, it was the worldwide banking crisis that really brought the topic into the public focus. Suddenly, there was even less money around & there was a big realisation that things had to change.
Now the chickens are coming home to roost. Governments and companies are moving the goalposts and changing pension conditions.
Most of the population is having to wait longer for their state pensions. Many people are now having to work longer and pay more money into their own pension schemes, before they get the benefits.
Another problem now is that when employees do finally come to reap those benefits, that they have paid for for many years, they are often not quite what hoped they would be. The pension pot has shrunk due to financial mismanagement, the banking crisis, the recession etc etc.

Part of the problem, as i see it anyway, has been most peoples lack of knowledge and interest in their own pension arrangements in the past. Most of us hate to think about our old age. How many young people want to start thinking about the financial arrangements for when they reach their 60's? Not many i would guess.
I was exactly the same when i was that age.

I was very lucky in that i was placed straight into a company pension scheme, on the day that i started work. I was 16 years old at the time and pensions were among the furthest things from my mind. All i wanted to do was to earn some money and enjoy myself, just like most young people of that age. And, therein lies part of the problem. At that young age, 60, or 65 seems a very long way away indeed. Many teenagers don't even expect to reach that age!

I was also lucky to be employed in what was, at the time, a public service. That meant that the pension scheme was safe and secure. Something that cannot be said of many private schemes, as a lot of people have come to learn and at a huge cost to them personally too.

My company scheme had a pretty high personal contribution rate, which was at least matched by the company. This is another issue that has come home to roost. A lot of employees don't pay very high contribution rates into their pension schemes. This suits many employees, as obviously it means they get more money in their pay packet. But, it is a very false economy.
It can suit both the employee and also the company too, as they then don't have to pay out so much in matched contributions themselves. Therefore even less is going into the pension pot.
As the company would normally set the personal pension contribution rate in the first place, this can also affect the issue. How many employees are going to ask to have more money taken out of their take home pay? It's almost like turkeys voting for Christmas isn't it? 
Any Unions involved in pay arrangements aren't going to be very popular with their members either, if they start asking for higher contributions. So the status quo tends to remain. Until now that is.

Another factor that helped me personally, is that my company then started to offer what was called an Additonal Voluntary Contribution scheme (AVC). This was a scheme, offered by that company and others, whereby the employee could pay extra money towards your eventual pension. You chose the amount, which was once again matched by the company (up to a certain level). This money was then invested and put towards a lump sum to be taken upon retirement.
Once again, i wasn't really interested in this idea and had no intention of taking up the companies offer. I was in my late 20's by this time and i still wasn't seeing very far ahead. Thankfully, i was persuaded by some of the "old boys" to join the scheme. Their advice to "just put a fiver in a week Andy and see what happens" was certainly some of the best advice i've ever taken. If only i could remember who those "old boys" were, so that i could thank them.

All of this good fortune and good advice came to the fore, very suddenly, last year when i lost my job.
Once again, i was fortunate in that because of my circumstances i was able to take early retirement. It was then that i realised how good the pension scheme, that i'd been forced into all those years ago, really was. And also, how good a decision it was to put extra money into that AVC scheme.
I can remember being shocked at just how much money i was paying out in pension contributions. Now, i could see how that money had been very well spent, even if i didn't realise it at the time.

I fully realise that i am one of the fortunate ones. I also feel that i am one of the lucky ones who managed to get out of both the rat race and who retired before the shit really hit the fan.
Yes, i won't get my state pension quite as early as anticipated and i have also lost out on a few more years of pension contributions, which reduced the value of my current pension. But, that it a small price to pay i feel. I know that many others would be happy to be in my shoes.

So, if i have learnt one thing through all of this it is that it is never too early (or too late) to start thinking about your pension arrangements.
Also, listen to those "old boys" around you. They might just be talking sense and may well save you a lot of worry and money in the future. They also give their advice for free.

The current pension crisis is bad news for many people and for many different reasons too. But, if it does get people to start thinking about and taking an interest in their own pension arrangements, no matter what age they are, that can only be a good thing. The action that people take might include starting to ask questions of their own pension fund, or it might even be taking strike action to try and protect what they already have.
Either way, they will at least be doing something and they are also letting those in charge know that you are going to be taking an active interest in the future. That will help to focus their own minds and actions.

As i have learnt, action is good, in-action isn't.


  1. Just for one day you're talking about pensions? It's been a constant noise here, with conservatives railing about how public employees (teachers, police, firefighters and other "parasites") are bankrupting us and destroying society by actually having a decent pension plan.

    But would any of the people doing all the shouting sit back take it if their retirement plan were suddenly under attack by outsiders? Would they allow half of their pension to be taken back and say, "You're right, I really don't deserve it"?

    I'm not sure how this pension discussion is being framed where you are, but here it's just part of the total war on public service and anything that stands in the way of the private sector (and more specifically, the 3% who own the private sector) keeping the rest of the country poor and under their thumb.

  2. I agree with you Ken.
    Today was the day of the actual strike. But, pensions are the talk of the town recently.
    Sounds like the same arguments are being spouted over here as well & for the same reasons.
    Heard a telling statistic on the evening news here today. In the public sector 84% of employees are in a pension scheme. In the private sector that figure drops to around 30%! That's frightening to me.
    I feel the politicians are trying to provoke a public backlash against those sensible enough to actually have a pension & they are using the supposed cost to the taxpayer as a tool.