Personal Finance: Taking Control of Your Pension Worries
Byline: Jeremy Gates
Is it worth saving for old age? The question must worry millions of workers - particularly those on average and lower incomes - when they hear that pension funds lost a quarter of their value in the year ending in March.
The shock figures, from researchers Russell/Mellon CAPS, emerged from a survey of 82 fund managers with nearly pounds 200 billion in fund assets.
The pain, at personal level, is greater as employers switch from final salary, or defined benefit (DB), schemes to cheaper, money purchase defined contribution (DC) plans.
DC pensions are particularly tough on somebody retiring today with shares at current low levels. The total value of pension funds has fallen for three years in a row. Few people think seriously about pensions until retirement looms - when it is usually far too late.
Today's pensioners, many of whom saved in the good years when pension funds were massively in surplus, are themselves scarcely having a ball.
Latest Government figures show that they rely heavily on state benefits (including the old age pension) receiving on average pounds 68 a week from occupational, or second, pensions.
But the going gets much tougher from here.
For many people still in work, the second pension is looking decidedly shaky - because of weak stock markets, unwise company pension 'holidays', and Gordon Brown's controversial decision to siphon out pounds 5 billion a year from private pension funds by a tax change the moment he arrived as Chancellor in 1997.
Yet Barclays Bank says half all adults - 53 per cent - say they are simply too busy to organise their long-term finances.
This year, the problem comes closer to home - with new style pension statements (Statutory Money Purchase Illustration or SMPIs) quoting the actual spending power of your pension in year one in today's money, and intended to persuade savers to top up savings while there is still time. The only real solution, says the Consumers' Association, is to 'Take Control of Your Pension', the title of its Action Pack aimed at ensuring that workers save enough for old age.
While alternative investments - buy-to-let properties and ISAs among them - have attractions, private pensions still have big advantages:
Employers pay into the worker's pot as a tax-free benefit
Workers still enjoy tax relief up to their highest rate on anything they pay in
Contributions are invested and grow through the additions of income and capital gains which are tax-free. …