Pension Scandal

Pensions have always been a risky investment. First there was the scandal of Financial Advisers telling people private pensions were better than Employer Pensions when they were not. Financial advisers are rarely independent and most are vague about their administration charges. They will invariably tell you to invest as much as you can as early as you can in your pension. What they won't tell you is:

The large administration charges

Very High Transfer Penalties

Fund may disappear if you die

You have to buy an annuity

That pensions are no longer as tax efficient as they once were

Also what many financial advisors will tell you is that pensions are tax free. Well they are not. Tax is simply deferred until you take the pension. So suddenly pensions do not sound as attractive as the big pension companies would have you believe.

If the above wasn't enough Labour have put the final nails in the coffins of pensions, with a combination of stealth taxes and misguided legislation.

In the 1997 budget Gordon Brown stopped pensions from reclaiming tax on share dividends. This has cost pension funds Ł5 billion a year. This huge stealth tax went largely unnoticed at the time. It is only now that people are beginning to realise that Labour have carried out a huge smash and grab raid on their pension funds.

Labour have introduced a new accountancy rule FRS 17, which will force companies to show their pension liabilities on their balance sheet. As a direct result of this new rule many companies are now closing their final salary schemes. Many other companies are now investigating following suit

So where does this leave us. Prudentials own study says a man aged 30 would need to save Ł480 a month to achieve a Ł15,000-a-year indexed linked pension at 60. This assumes the savings grow by 5% a year. This is likely to be just a quarter of the average salary in 30 years time.

Who can afford to save Ł480 a month? With the huge Labour tax burden and the high cost of living in the UK most people do not have any spare cash left at the end of the month.

With employers closing final salary schemes, and private pensions under performing due to a poor stock market and Labour stealth taxes the government tell us not to rely on state pensions. National Insurance NI is supposed to fund future state pensions. However NI is simply treated as another tax for labour to waste on ineffective initiatives. It leaves us with an ever increasing aging population living in poverty. And it will only get worse.

Pensions - The Deferred Problem