MONEY COMMENT
Employers Pump More Into Pensions

By Cliff D'Arcy
February 17, 2003

One of the greatest problems affecting Westernised developed nations is the growing cost of supporting pensioners. Unless we all start putting more away for our retirement, many of us will suffer a huge drop in our standards of living when we give up work.

The following factors are combining to hit present and future pensioners hard and create the pensions crisis:

• Lengthening life spans and falling birth rates mean more pensioners but fewer workers supporting them.
• Sinking stock markets and falling annuity rates (the incomes we buy with our pension funds) mean that we need to save more to create a larger pension pot.
• Many employers are closing attractive final-salary schemes and replacing them with less generous money-purchase plans.
• During the boom years of the 1980s and 1990s, employers took advantage of rising share prices to cut their contributions to company pensions.

According to a report from Incomes Data Services (IDS), a leading pensions research company, many companies are now increasing their contributions to schemes to tackle the problem of growing shortfalls.

IDS looked at over 330 major pension schemes and discovered that employer contributions had risen to more than £6 billion from £5.3 billion a year ago. In fact, contributions were up 14.3% over one year and 25% over two.

Almost a quarter of the money recently paid in by employers is made up of "special" contributions, used to strengthen a scheme or make up deficits. This suggests that companies are being forced to make one-off payments to tackle under-performing and poorly managed schemes, while cutting regular contributions to schemes.

Even worse, despite the overall increase in payments, almost 1 in 10 employers paid nothing into their schemes last year.

It's pretty clear that many employers are expecting their staff to shoulder the burden of their pension through increased personal contribtutions. So, what can you do to confront problem pensions?

The obvious answer is to put more money in by increasing your monthly contributions (or skimming off an annual bonus, overtime or other payment).

Alternatively, if you don't want to tie up your money until you retire, you could consider investing in tax-free ISAs or even property.

Whatever you do, the only way to enhance your retirement income - unless you want to delay giving up work - is to put more money away, the earlier the better.

Read What Everybody Must Know About Pensions, visit our re-launched ISA Centre or read our Property Discussion Board for more information.