The Pensions Perfect Storm

Having had 5 jobs in 16 years, all in the private sector, each with different pension schemes that each employer would contribute to (Standard Life, Skandia, Friends Provident, etc) I've ended up consolidating them into a single SIPP with the exception of my current employer's pension (Scottish Widows) as I assume I can't transfer half a pension pot.

It's a mess, but a SIPP allows me to take charge of what I'm investing in, and I also have a better idea of the total value of my pension pot. It required quite of a bit of calling/writing to move the money around, but they were all eventually merged. It's also a lot less hassle than dealing with 5 separate statements each year.

As a relative newcomer to investing, I have also just completed the consolidation of my previous employment pensions into a (Motley Fool) SIPP and feel much more empowered for it!
I may yet make a mess of it, but it will be my mess and I'm sure to learn a lot from it. What I can say is, I have gained little benefit or insight from the mess the various schemes have made of it to date.
Wish me luck...

Phil

There are two main issues. Firstly, pensions have failed to perform because what little growth funds have seen have been taken up by high charges and government tax takes. So when you retire your fund is worth nothing near what the salesman predicted all those years ago.

Secondly for 40+ years the UK government has been giving firm signals that if you fail to provide for your old age they will step in and look after you, if you do provide you're a mug and will get little or no help.

At the same time we are living longer and demanding more, so pensions can't keep up. Like the Australian idea but we are maybe 20 years late.

I'm interested to see that people are consolidating deferred pensions into a SIPP. I have 4 such pots and when I took advice 3 years ago was advised that as all 4 are contracted out final salary scemes I should proably not transfer them into a personal pension arrangement because they contain GMP (Guaranteed Minimum Pension) with escalation which could be lost on conversion to 'Protected Rights'.

Thanks Phil. Usually pays to be cynical, I find. I'll add seek second (and possibly third) opinion to my investment to-do list for 2012.

The collapse of pensions as promised in the past was a demographic inevitability. This should have been obvious (it was to me as a young graduate in the 1980s), but of course our Powers That Be preferred empty promises that would fall on the future.

What wasn't inevitable was the combination of loose money and tax changes that led to the disastrous credit boom of about 2000-2007, and with it the huge transfer of wealth from the productive (taxpayers) to the rich (property owners). A boom that just kicked the pensions issue further down the road by handing an unearned and tax-free bribe to large numbers of older people.

The demographic bulge is only just starting to reach 65 and there's a lot more to come!

Another nail for the 'final salary scheme'. Many schemes benefitted from rules which meant that those leaving the company before retirement age suffered disproportionate reductions in their pension, and the benefits went to those who remained. When changes in the law impacted this company pensions became much more expensive to fund.
And of course, the Equitable Life disaster to which Gordon Brown notably contributed has led to a marked fall-off in the private pensions business. No bad thing since the charges, out of all proportion to the costs, generally make it such a poor vehicle.

I note people decrying pension holidays taken for various reasons (as mentioned above) by employers in the past. However most companies gave there emloyees a holiday too (again as mentioned above). Mine certainly did and do not remember any employee contributors complaining about the bonus salary they received during the holiday period or indeed the unions either.

I took the opportunity to retire at 50 on a full DB Pension at 50 with redundency and only regret that government rules at the time only allowed me to buy 2 years additional pension rather than the 10 I wish to buy.

I think this was the best decision I have ever made and I have never regretted it.

I would add that I have spoken to many so called experts over the years and a number of IFAs' and I never found any of them apparently more capable of managing my investment portfolio than myself and certainly non cheaper.

"So it's all our fault?"

No, it's entirely your fault and your fault alone.

The problems here are a failure to use the good times to prepare for the bad.The stock market boom of the 80s 90s, lead to pension holidays etc. Maggies changes to legislation meant companies could raid their pension surpluses, and became takeover targets for that very reason. Thanks Tonytwotimes I was unaware that the tax regime even forced them into this. Then came the bad times with no stock market growth and pensions fell in value.
Gordon & co, worsened the situation as he saw them as a target and reduced the tax benefits. He also spent more in the good times and helped create the current government deficit, rather than cutting debt in the good times, as had happened in the past. The UK needs to change its policy in the good times, and stop just having the taxpayer fund pensions and invest even just a small part of the money, like other countries such as Norway, Australia etc.
Mr John Lewis I believe set up his company as a cooperative. it is owned by the workers. They can choose to have smaller bonuses now, for better pensions in the future. There are no shareholders, as he 'gave' them the company.

Various points
It is very true that there were penalties mentioned above if fund above105%.

Because of Robert Maxwell who used pension funds to support Mirror shares during a fatal downturn. New accounting rules started to be imposed and these got stronger every few years and we thought this was great, but the result was that pensions could not use those who would die off or leave so they have to account for every member every year which shows up the defecit. This is what killed the DB pension its a bottomless pit. The removal of the tax relief on dividends was the worst thing Gordon Brown did and there was not a week that it was not mentioned during that Labour period.

With regard to taking DB Pensions out and placing them in a SIPP. Dont do it unless you have a reasonable expectation of dying within 5/12 years.

I was in that position 2 years ago I had a very good Section 32 buy out policy that would pay out an indexed sum. As I had a heart attack 20 years ago and have on going angina
I have transferred the sum to a sipp with other Protected rights. I dont need to draw it and it is earning about 7.5%
yield which is greater than the pension offered. So it needs a lot of thought. Also If I had a wife she could continue with the full sum on my death.

Fedupwithbrown
There should be no MVR if it has matured. If its not Guaranteed you should be given the option of transfer. see the above.

Having moved around during my career I ended up with several 'pensions' which would have paid out typically £5 pa each. They paid me off (legislation allowed this) with a lump sum equivalent to about 10 years' pension payments each, which amounted to not a lot. One firm I worked for for 5 years did not do this - they gave me a pension which pays approx half as much as the state pension which I have been paying for for 40+ years. Confusing, isn't it?

I agree that Gordon Brown's raid on private sector pensions was the biggest blow to all of us. I also remember that his excuse for not doing the same to public sector pensions at the same time was that there was a contractual requirement which prevented him from doing this. I suspect that there were other reasons - the lack of an equivalent of a Trade Union to argue the private sector's case for the same; Unions financial support of the Labour Party; the number of Labour voters in Public Sector employment, to name only some.

Then there's the gold. What did he spend the take on from selling most of our gold off cheaply, I wonder. It was OUR gold remember - Government has no money of its own. Have we ever had a worse Chancellor or Prime Minister?

Saving for our old age is not an attractive option either. I have an 89-year-old uncle who foolishly (small 'f') worked hard all his life and saved his money, in ISAs and Building Society accounts. He is now paying our more than his income for the Care support he has at home. Others get the same or greater support free. The lesson to be learned is that we should spend all our money and fall on the state for support in our old age. Can anyone fault the logic?

re: ed1value's comment.....................

The Australian "Superannuation scheme" sounds great on paper but the compulsory 9%(soon to be 12%) means that banks and insurance companies don't have to work for their money, they know that they will get it anyway.

Most investment funds are poor performers, because of no effort needed, and there are continual and multiple charges being bled off.
The only bit of good news is that you can fund cheap life insurance from your Super.
The average man in the street ends up with a surprisingly low pension, the only advantages are that he can withdraw some of the capital, and income from a Super is tax free.

One can convert it to a SIPP like structure, but because of extra charges that is uneconomic below about AU$150,000.

All in all, a good effort by the Aussies, but because the Government won't put a ceiling on charges, ultimately poor value to the man in the street.

The legislators were hijacked by the greedy banks and insurance companies. Now where has that happened before?

fBasia02

*They (John Lewis partners) can choose to have smaller bonuses now, for better pensions in the future."

Individual partners don't currently have this option, though the partners could, if they wished, vote for this to be the case.

Seems kind of unlikely to me.

I work for a smallish company (around 80 employees) who have used the same small firm of "IFAs" for pension advice for many years. I've been with the Co for around 12 years now - during this time the "IFAs" have made us shift our pension pots twice - Royal Sun to Standard Life to Aviva - each time they trouser a good 6 figure sum in commission - £6K from my account alone last time. The "reasons" they give for the move are tenuous / fatuous at best.....and the advice they give us is rubbish too. Blatant thievery and a glowing example of how messed up our private pension systems are - there are too many sharks (government and otherwise) circling and helping themselves to big chewy mouthfuls whenever they feel like it. A scandal for the future (as per PPI, endowments etc)??

Companies that over funded their pensions were deemed to be avoiding tax and were therefore hit for it.

It was a question of damned which ever way you jumped, don't fund and run the risk of being caught out later, do fund and get taxed for your prudence.

Hence it's not always fair to criticise companies taking pension holidays. Gordon Brown however has no defence :-)