What does the future bring for pensions?

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What does the future bring for pensions?

The most common way of saving for retirement has for a long time been to put money away in a pension, but how long will this be the case if the current system stays the way it is?

A telling response to this question comes from a recent regional survey by PricewaterhouseCoopers, which indicated that 67 per cent of people in both Northern Ireland and London do not see pensions as a reliable way to save for when they retire.

But a private pension seems to be a fairly logical way of approaching the problem of an ageing population, who may be surprised and disappointed by the amount of money that a state pension gives retirees.

Martin Palmer, head of corporate pensions at Friends Provident, said: "The issues are not simply going to disappear, but the hope is that by being more aware of these financial pressures we can start to equip ourselves for later years."

One product that seems destined to die out soon is the final-salary pension, as more and more companies close their doors to the scheme.

This week, Whitbread announced that it is getting rid of its final-salary pension scheme, leaving Tesco, Diageo and Shell as the only companies in the FTSE 100 who still offer the product.

According to Dr Ros Altmann, an independent industry analyst, the writing has been on the wall for this type of scheme for some time now, because no employer can afford to fund it.

So if pensions as they are do not work, what other options are available?

The Pensions Policy Institute released a report recently suggesting that home ownership could be part of the solution.

Within the paper it was stated that living costs for those who own their own home are 30 per cent lower for a person living alone and 40 per cent less for a couple.

However, the report concluded that the real benefit of homeownership was the ability to release equity during retirement, dependent on the person's financial needs at the time.

Another option to increase retirement income was put forward emphatically by Mike Morrison from AXA Winterthur Wealth Management, who claimed people should "start saving and keep saving".

He added: "There is a definite need to encourage a saving culture within the UK."

But these suggestions seem to supplement a pension as opposed to replacing it, so perhaps what is needed is for people to become actively involved in their scheme and make sure their money grows.

Keith Churchouse, director of Churchouse Financial Planning, pointed out that people have heard so much bad news about pensions in the past ten or 15 years that they just stop listening when the topic comes up.

He highlighted how the minimum age of retirement is being raised from 50 to 55 in April and yet only 25 per cent of workers are aware of this, according to a survey by Aon Consulting.

Getting people more involved with their pension schemes sounds like a positive idea in theory, but some people are calling for major reform to be carried out in the sector.

Angel Gurria, secretary general of the Organisation for Economic Co-operation and Development, said: "Reforming pension systems now to make them both affordable and strong enough to provide protection against market swings will save governments a lot of financial and political pain in the future."

This week, Just Retirement called for a cabinet-level minister to be appointed solely to deal with the issues surrounding retirement.

It is not clear yet what the solution will be to the problems surrounding pensions, but it seems likely that the topic will feature high on the political agenda when the government calls a general election.ADNFCR-323-ID-19369129-ADNFCR

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