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Tuesday September 26th, 2017 

News Archive - June 2009

Farewell to final salary pensions

4/06/2009
Barclays is closing its final salary pension to existing members.

They will still have a company pension scheme, one which is much more generous than many schemes offered by smaller employers. But employees will not build up any more pension benefits within the guaranteed final salary scheme. The reason for this is simple. The scheme has a huge deficit which is ever-widening. The cost of providing final salary pensions is just too much in the current economic climate.
Only four FTSE100 companies still offer final salary pensions to new entrants. Now that money purchase pensions are the norm, over time I am sure that these four dinosaurs will also close their schemes. That only leaves the public sector with final salary pension arrangements as the norm. And how long can they continue? To replace these pension arrangements would be a huge decision which would be extremely unpopular with the many millions who work for the state. However, the current situation is unsustainable. There is effectively a two tier system, with huge discrepancies between the two types of scheme. Sadly, I doubt that many public sector employees who have a final salary pension (whch will give them a guaranteed and inflation-proofed pension in retirement) really appreciate the value of that benefit and the sheer cost to the taxpayer of its provision.
I think that public sector workers should be offered a hefty one-off rise in pay to compensate for the loss of their final salary pension schemes. The short term cost to the government might be considerable - but the ongoing cost of continuing with the current system is unaffordable.

Income Drawdown

10/06/2009
People approaching retirement this year have some tough decisions to make.

The value of their pension pot is likely to have fallen over the last 2 years. If they buy an annuity now, these losses will be crystallised and they will probably end up with a pension lower than they could have had if they had retired 2 years ago. Many pensioners are looking around for possible solutions and one might be Income Drawdown, or Pension Fund Withdrawal to give its more formal title. This is an option which allows the withdrawal of some or all of the tax-free lump sum, and then the provision of a regular income, withouit actually buying an annuity. The pension fund remains invested which gives the potential for its value to recover before the annuity is purchased. Annuity purchase can be delayed until age 75.
At first glance this looks like a good option for many. However, in practice it is far riskier than it sounds.

When using Income Drawdown there is little point in using low risk investment funds. If your pension fund is not growing then it is almost inevuitable that its value will be eroded by the withdrawals taken, meaning that you end up with a smaller fund and a lower annuity than you could have had in the first place. If you do not want to take higher levels of risk with your pension pot then it is not likely to be a good option for you. Income Drawdown can offer useful features for some, especially those with a larger pension pot (£100,000 plus) and other sources of retirement income, and also for higher rate tax payers who would like some flexibility in how they draw their pension income for income tax purposes.
However, for the average pension investor, it should be considered with caution.
Speak to Mulberry Financial about your retirement options. It is a once in a lifetime decision - why make it without advice?

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The material here is for general information only and is not intended to be relied upon for individual investment decisions. Appropriate independent advice should be obtained before making any such decisions. Mulberry Financial Ltd does not accept any liability for any loss suffered by any user as a result of any such decision.
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