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Squeezed and Opting Out of Pensions?
Ellen Kelleher of the FT reports, Squeezed Britons opt out of pensions:
Hundreds
of thousands of Britons have taken a holiday from their personal
pension contributions, in further proof of the severity with which
household budgets have been squeezed by the economic downturn.
The
latest data from HM Revenue & Customs show that contributions to
personal and stakeholder pensions fell by more than £1bn in the 2009-10
tax year.
As many as 430,000
fewer UK residents put money away for retirement through these vehicles
in the last tax period, a fall of 4.5 per cent, according to the
Revenue’s estimates.
The decline in pension savings in the UK
appears to be turning into a long-term trend. Since the 2007-08 tax
year, as many as 730,000 fewer UK residents are putting money into
personal and stakeholder pensions, while total pension contributions
have dropped by more than £2bn, according to the Revenue’s data.It showed that £18.2bn was
contributed to private pensions, including personal pensions and
stakeholders, in the 2009-10 financial year, down from £19.26bn during
the previous 12 months.
Tom McPhail, head of pensions research
with brokers Hargreaves Lansdown, attributed the shortfall to
middle-class Britons’ tendency to favour short-term savings arrangements
which have a more immediate impact on households’ bottom lines.
“When
people are worried about job security, there’s a tendency to divert
savings into shorter-term arrangements such as individual savings
accounts, or to reduce mortgage debt,” Mr McPhail said.
Experts
believe the losses underline the importance of the auto-enrolment rules,
coming into force in 2012, which will see employers forced to pay into
a private pension for their employees, or use the government’s new
National Employment Savings Trust (Nest) pension scheme.
The
minimum employer contribution will be 3 per cent of salary and employees
will be enrolled once they earn about £7,500 a year – though they will
pay contributions on earnings above roughly £5,700. Staff will put in a
minimum of 4 per cent of pay up to a maximum salary of £33,500 in 2006
prices. Tax relief will add 1 per cent.
Nest will have an
annual cap on contributions of £3,600 a year, and a ban on transfers in
and out – although the independent pensions review says the cap and
the ban should go in a few years’ time.
All employers will have to offer a pension at least as good as Nest, or use the scheme. About 750,000 will have to provide a pension for the first time and are likely to take the latter option.
Meanwhile, here in Canada, Janet McFarland of the Globe & mail reports, Ontario report calls for boost to pensions:
Ontario’s
recipe for improving Canada’s pension retirement system includes both
modest improvements to the Canada Pension Plan and new pension
innovations from the private sector, Finance Minister Dwight Duncan
says in a new report.
The province issued a consultation paper Friday,
asking for public input on proposals to improve pensions for Ontarians
as part of a national initiative to find solutions to boost retirement
incomes across Canada.
In a letter accompanying the report, Mr.
Duncan continued to support a proposal he endorsed at a national
finance minister’s meeting in June calling for an expansion of CPP
benefits for Canadians. The proposal has faced opposition from Alberta
and is expected to be debated again at a finance minister’s meeting in
December.
“A modest enhancement to the CPP now would provide a
significant benefit to these workers when they retire,” Mr. Duncan
said. “I believe such an enhancement is affordable if contribution
rates are phased in gradually, particularly in light of the over
$8-billion in annual tax relief Ontario will be providing to businesses
as part of its tax plan.”
The report does not back any specific
model for achieving that goal, however, only outlining different
options and asking for comment on the choices.
Currently,
CPP benefits are structured to replace 25 per cent of an individual’s
career average earnings up to an annual limit currently set at $47,200,
although most retirees do not qualify for the maximum amount.
One
reform option is to increase the maximum income replacement rate from
25 per cent currently to a higher rate, such as 35 per cent, the report
said. Another option is to increase the maximum earnings ceiling, the
report said, noting that a 50 per cent or 100 per cent increase would
move it from $47,200 a year to $70,800 or $94,400.
The report also
asks for comments on potential implementation issues with expanding
the CPP, including how to phase in the increases and how extra money in
the fund should be managed. It also questions whether an increase
would have an impact on other retirement savings by inducing employers
to reduce their pension benefits or inducing individuals to save less
on their own.
Mr. Duncan also said governments should make regulatory changes that will provide better private-sector pension options.
In
his letter accompanying the report, he said current rules only allow
pension plans to be offered by an employer to an employee. This limits
options for people who are self-employed or who work for small companies
that cannot afford to offer a pension plan.
The report asks for
input on proposals to allow financial institutions to offer pension
plans with participation from multiple employers, allowing more
companies to offer retirement benefits to workers and reducing
administration costs by creating large pools of funds.
The report
said one goal of such plans would be to allow individuals to hold their
own accounts in the pension plans, so they could transfer them if they
switch jobs. The money would also be portable nationally, the report
suggested.
“By changing these laws, we can expand the range of
institutions that can set up pension plans, and the range of people who
can access them,” Mr. Duncan said.
The report also asked for
comments for reforms to make it easier for companies to offer “target”
benefit plans, which are similar to traditional defined benefit plans,
but allow the employer to reduce payouts if the pension plan does not
have sufficient assets to maintain coverage.
Employers and pension
experts have argued such plans would be more flexible for sponsors and
could be a solution to declining pension coverage in the private
sector, where many traditional plans are being abandoned.
You can download Ontario's new report, Securing Our Retirement Future: Consulting with Ontarians on Canada's Retirement Income System.
I think it's a step in the right direction, but much more needs to be
done. What really worries me is what's going on in Britain, and how long
before we see the same trends on this side of the Atlantic (probably
already happening).
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There is a lot of pain behind the numbers.
i read zero hedge to cheer up.
i gotta stop reading that daily mail website though - its just grim stuff all the time
Of course thats true but the uk does it in a very 'holier than thou' way.
i left the uk 12 years ago for better job opportunities.
new statistic from the uk (dailymail.co.uk ) - of the 2 million jobs created during the uk boom years 1.8 were taken by immigrants.
while 3 million were paid to lie idle on welfare.
is that not insane? its a stupid country.
Ah well , never mind.
the brits have got used to living it large on credit and thats hard to give up.
Pair this up with the previous socialist/marxist tony blair government fattening up a welfare state where 1 in 3 of the voters are either on welfare benefits or working for the state.
As a nice little bonus you have 1 in 5 births in the uk born to mostly uneducated islamic immigrants brought in with an open door immigration policy after decades of weak governments laden with guilt over empire.
i'm long on the uk's gradual sinking into a pit of shit.
and it deserves it - it has a centuries old history of treating its elites treating its indigenous population with contempt.
anyone with any 'get up and go' has got up and gone.
"it has a centuries old history of treating its elites treating its indigenous population with contempt."
True. But is anywhere different?
I would get it out if I were them. Argentina nationalized billions in private pensions for "safe keeping." Broke Governments just look around for where the money is.
They've already talked about taking IRA's and other plans here, for "safe keeping" from those scary drops in the stock market and giving you a Treas. bond yields in your retirement.
I got mine out. You don't want to have too much in your 401K or IRA anyway. Between health care and estate taxes, if it looks like you're worth more dead than alive they might not ration you time on the dialysis machine.
Absolutely. "Forced retirement" is nothing short of an extra tax, and the money will be ripe for picking when the public sector employee entitlements shoot through the roof.
It has gotten to the stage where I am seriously considering leaving the UK. Anyone who bothers working hard is actively punished through ever-increasing taxation, and the socialists wants us to pay even more (while protesting benefit cuts).
I'm going back to work on my own project, and if it makes it out of prototyping stage I am considering starting the actual business itself in Poland/Czech Rep/Slovakia, where the economies are run responsibly, and living expenses are reasonable.
/Not forgetting that their women are a lot hotter than British women.
I will gladly stop paying into my pension tomorrow, for a Hamburger today!
The UK has severe problems, the only real solution to their woes would be a greenhouse over most the country. Then the otherwise generally pleasant people can stick to gardening. It would also be warmer. In a good way.
Pension managers make bone-headed decisions with members' contributions, and still get paid.
Governments threaten to - and succeed in - "repurposing" pension funds.
The bad economy is merely secondary - it's a no brainer to refuse to contribute to just another ponzi.
Speaking of the Ponzi... how about Social Security in America? Everyone with a brain knows that is a Ponzi scheme, so how can Americans opt-out of being forced to give money to Social Security?