The death of UK final salary pension schemes

Looking after teachers looking after their finances

According to a survey by The Association of Consulting Actuaries of 300 of the UK's largest firms, 87% of defined benefit pensions are closed to new entrants, with 18 per cent closed to further contributions from existing employees - double the proportion just four years ago. Most employers will be enrolling members into the new scheme of personal accounts rather than plumping for the existing schemes. An ageing population coupled with government regulations and economic volatility has effectively put an end to the costly final salary schemes. In fact, The Association of British Insurers and Age Concern on Sunday called for the age at which people must buy an annuity with pension savings to rise  from  75  to  80.

USS, the second-largest private-pension scheme in the UK, said the value of its fund was £26.8 billion as of 30 September 2009. With £31.8 billion of benefits promised to members, this left it with a £5 billion deficit on the "technical provisions" basis.
So, what can you do to protect your pension and make sure your pension pays out? Luckily, you have the option of moving into a SIPP (Self Invested Pension Plan) or a QROPS (Qualifying Recognized Overseas Pension Scheme). If you don't intend to return to the UK, the QROPS is often the better option, whilst if you ever want to return to the UK it is more prudent to invest in a SIPP. They both provide protection against income tax and capital gains tax whilst a QROPS also protects against inheritance tax (currently 40%). It is important to choose a scheme which is approved by HMRC (Inland Revenue) and ideally based in Guernsey or the Isle of Man (which both offer 90% protection for your pension, should the insurance company you use goes bust).

Of course, not all pensions should be transferred offshore. Some final salary schemes provide a high level of benefits which makes it not worth moving. The best thing to do is to get your local qualified financial advisor to take a look at your pension.

Richard D. Malpass

Credenda Associates

Contact Richard / Visit Credenda website


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