The £65billion bailout of pension funds by the Bank of England might seem like the stuff of Halloween nightmares, but it’s an important reminder to check what pension protections are available for your retirement savings.
Defined Benefit (DB) pensions (which pay a guaranteed sum when you retire) were at the centre of the recent panic.
But while the Bank’s actions prevented pension funds from going to the wall, there are certain safeguards that would have kicked in before savers and retired pensioners would have been hit.
When it comes to DB schemes, employers are on the hook for paying the amount promised, and even if they go bust the Pension Protection Fund (PPF) can step in.
The PPF, set up by government in 2005, works by taking over the pension schemes to ensure workers still get some of their pension.
It will assess the scheme, and if it has enough money will pay all pensions as promised.
If not, it will cover the payouts (funded by levies on pension schemes). If you’re still working, this is 90 per cent and if you’re already retired, the fund covers the full amount to which you’re entitled.
There are some important caveats. For the fund to pay out, there must also be no chance your pension scheme can be rescued; as well as not enough money in the pension scheme to pay the benefits you would get in the PPF.
If yours is a Defined Contribution (DC) pension – where you and your employer pay into a pension pot, the money is invested and there’s no guaranteed payout – the recent volatility in the stock markets might have caused your pension’s value to fluctuate, particularly if you have a high exposure to bonds.
DC pensions are far more common than DB schemes now, and savers take on the risk. So while investments are usually managed by pension trustees, employees need to watch the performance of their investments to make sure they have a big enough sum to fund their retirement.
Which? research shows a two-person household needs to generate an income of £28,000 a year for a comfortable retirement.
Last time we ran the numbers you would have needed £204,750 in pension savings to hit that goal by buying an annuity or £144,950 if you planned to use income drawdown.
If your DC pension savings have taken a hit recently and you’re not approaching retirement age, don’t panic.
Pensions are long-term investments, designed to smooth out short-term market volatility over time. But if you are near retirement, you might have taken a bigger hit as your pensions are likely to have been moved into gilts and bonds, to cut risk.
You might want to delay when you claim your pension if the value has fallen dramatically, so it benefits from markets getting back to normal.
If your pension provider or adviser goes out of business, you should be able to claim through the Financial Services Compensation Scheme (FSCS) if the provider or adviser is a UK-regulated company. You can check that on its website.
If you’re concerned about your future pension pot, you could seek financial advice. Under new rules from the Financial Conduct Authority, providers must offer free appointments to help customers make informed decisions about their retirement savings.
Free and confidential help
StepChange Debt Charity: 0800 138 1111
PayPlan: 0800 280 2816
National Debtline: 0808 808 4000
Citizens Advice: 0800 144 8848
Debt Advice Foundation: 0800 622 61 51
Turn2Us: 0808 802 2000
Find more advice on the which website.
Source: Read Full Article