Following a report from PricewaterhouseCoopers (PwC), commissioned by the Financial Services Authority (FSA), the rate that the FSA use to predict the investment return for people pension pots is likely to be cut.

Currently the FSA set an annual rate of 7% per year which pension companies use to predict the final value of an individual’s pension pot. However, the report indicated that this is actually too high and is misleading customers. It went on to suggest that the rate should be set between 5.25% and 6.5%.

If the rate is to be cut by 1% to 7% this would effectively translate to cutting the final outcome of a 25 year olds pension pot by almost a quarter. Anyone with a defined contribution pension which is based on the stock market should expect an annual statement predicting a much lower return on their investment.

According to the PwC report, since 2007, the actual return on UK equities was −1.5%. At the same time, the variability of the amount of return an investment will give is now much wider than in the previous decade.

The report argued that the projections about the future value of property was too optimistic and that the expected return on government bonds should also be cut in half. The report predicted that economic growth was likely to be around 1% in the short term, but be about 2.25% over the next decade and a half.

Peter Smith from the FSA said: “It is crucial that projection rates are set at a realistic level so that investors are not misled. Today’s independent research indicates that our maximum projection rates should be reduced. We are seeking views on the range of rates so investors receive a reasonable indication of what they can expect from their investment.”

Some companies have already changed their method of projecting the future return on private pension investments.

Whilst the current rate is based on a mix of 67% equity and 33% non investment, some have started to use asset specific projection rates. These look at the actual bonds, shares and property held in a savers pension fund to project a more realistic return on their investment.

In a blow to retirement savers and pensioners, the Bank of England has kept interest rates at the record low of 0.5% and voted to inject £50 billion more cash in to the economy by quantative easing.

The net result is interest rates on savings accounts and ISAs are unlikely to rise in the imminent new financial year and the price of gilts is likely to slip even lower.

For those approaching retirement or living off fixed pension income, the news is all bad.

Annuity income is fixed on gilts and rates have already plummetted and falling further just makes financial planning tougher for the over 55s and gives them less money to spend.

Bank rates were anchored at 0.5% in March 2009 and have not moved since. The new QE programme will bring the total spent on buying gilts to £325 billion.
“Some recent business surveys have painted a more positive picture and asset prices have risen,” Bank of England Governor Mervyn King said. “The pace of expansion in the United Kingdom’s main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries.”

Some commentators are worried that the bank is shovelling more cash in to the economy by quantative easing without having enough data to review whether the tactic is a success or failure.

The theory behind QE is simple:
• The Bank of England buys gilts with newly created money
• Sellers of gilts deposit that money in banks
• Banks lend that money to help boost the economy
• Gilt yields fall, making interest rates lower across the economy
• Borrowing becomes cheaper so more economic activity occurs

The reality, according to pensions guru Dr Ros Altmann, director general of over 50s group Saga, is different.

“The jury is still very much out on whether QE is actually providing an economic stimulus,” she said. “Despite the billions of pounds of new money, consumer lending fell last year, growth weakened and inflation sapped consumer confidence.

“Even if initial gilt-buying did provide a boost, it is clear that the lower gilt yields fall, the less effective the policy becomes. I believe, at current levels, no further stimulus will be achieved by continuing with QE in the same way.”

But if we’re concerned with more serious sentiments such as ‘what if I suddenly meet an accident?’ or ‘what if I die at the wrong time? It is so because a group (such as family members) could share and modify their pension plans into one program which could accommodate each member’s need.

Aside from these comes the stakeholder pension and company pension. Obviously, those pensions makes life much easier because the most likely than not, the organization or company gets to fix the pension for you. However, as much as we are respecting ‘balance’, it would always be our job to check on the schemes of the organization we are planning to join and the the company we are applying for, so that we could eventually take precautionary measures.

Of course, if we should seek our own opinions, we should also seek others’ advice. Advice would help us balance our opinions and decisions.

So those are just the few ways we could deal with uneasiness and fight with life’s inconsistencies. Those are just few steps in keeping peace within when the circumstances outside are too muddled up. If there is turmoil, there could also be peace of mind, a sense of self-possession. It comes with the saying “if there’s a will, there’s a way!”

Balance is very important.

You might be wondering, what if you die before retiring? What will happen to your pension fund? This article will serve as a pension advice article, and will answer these questions.

If you die before you reach retirement, let say for example you are under salary related scheme of company pension, you will be subjected to different situations depending on your status as member.

If you’re a member that has stopped making contributions or in short a deferred member, your dependant will be subjected to fewer rights to your benefits depending on your scheme’s rules.

And sometimes, if you are in a civil partnership or married and the scheme’s offering, instead of Additional State Pension, benefits your dependants will receive refunds of your contributions but without interest.

But if you are an active member, meaning you are continuing your contributions, and depending on your scheme’s rules, your dependants may have the following payable benefits:

• A lump sum of up to four times of your salary at the time of your death, tax-free of course
• A refund of all your contributions without interest
• A pension plan, the amount will be stated on your scheme’s rules, for your dependant.

Need some company pension advice? Then this article will help you.

Let’s admit it, increasing our pension fund is what we desire, to of course assure ourselves that we have sufficiently large amount of income on our retirement. It’s not that bad, who wants to reach his/her retirement age thinking that he/she still needs to work to have enough income to live properly.

And to do this, you can have Additional Voluntary Contributions or AVCs, which are money-making method that will increase your fund, if you are under a company pension scheme.

AVCs are more helpful to those who have started saving for pension mid-way and later on their careers and their lives. To make sure that they have larger funds, for more benefits that they and their love ones could enjoy, AVCs should be practiced.

AVCs’ advantages aren’t limited to their characteristic of building a higher pension fund, but it has also other advantages like:

• Chance of either varying the amount of payment or even stopping it.
• Tax relief on contributions, which certain limits are under Pension Rules of April ’06
• In most cases, administration charges are much lower compared to investing onto a separate scheme.

Are you familiar with the type of personal pension scheme that allows individual to own investments that are permitted by the HMRC (HM Revenue and Customs)? If not, then you should know that it is known as the SIPP pension.

Under this scheme provided that the scheme administrator is a co-trustee to implement control, you as a member may own assets (thru individual trust). This feature is different with usual types of personal pension, where your provider as trustee will control and own the assets.

Here are three general types of SIPP, wherein the pension industry named them towards industry terms which best describe them:

• Hybrid. In this, only part of the assets is to be self-invested, for some must be at all times in custody of usual insured funds. Requiring insured funds are common from typical providers in order to get their product charges.
• Deferred. Under this, although some providers offer direct access to mutual funds, most assets are held in insured funds. Until an indefinite date, self-investment is ‘deferred’ in this. Luckily, some newly available types of this provide 1,000 plus fund options to allow less restriction.
• Full. With this, there are no restrictions in access to many allowed classes of investment assets.

Do you know that SIPP pension is a personal pension scheme that is approved by the government of United Kingdom? And do you know that under this personal pension, you are allowed to choose investments of your choice from the collection of accepted investments by the HMRC (HM Revenue and Customs)?

With SIPPs, like stakeholder pension another type of personal pension, tax rebates are also allowed on your contributions. But these are in exchange for limits on accessibility. And also under this scheme benefit withdrawal, rules for contributions and others are the same with other types of personal pension.

Although under SIPPs having any investments that are HMRC-accepted is alright, there are still some that are not allowed by most providers. Not allowed by most, for some of these are subjected to weighty tax penalties. That’s why there are allowed by primary legislation but will eventually be banned by providers due to their high tax penalties. And these weightily taxed investments are the following:

• Residential properties
• Assets which are somewhat unusual, but highly collected, like art, stamps, classic cars, etc.
• Concrete and movable properties, less than £6,000, are subjected to additional conditions with regard to how they are used.

PPF is the abbreviation used for the Pension Protection Fund. It is a fund used for protecting members like you of a final salary, also known as a defined benefit, company pension scheme. PPF works by paying normal compensation that is based on the amount of your pension, in case the company got bankrupt and your scheme doesn’t have enough funds to cover your pension.

You will receive regular compensation if your company’s scheme and PPF conditions are in harmony. Compensation equal 100 per cent of your pension will be given to you upon reaching your scheme’s retirement age. And if you haven’t reached your schemes retirement age, depending on PPF rules, you may be entitled to regular compensation of 90 per cent of your pension.

How to qualify for financial help from Financial Assistance Scheme or FAS?

If you have lost out on your pension because your scheme ended after January 1, 1997, you may be entitled to FAS if your:

• Final salary or defined benefit scheme, in some instances, was overwrought because even though your employer still doing business it could not pay your benefits
• Final salary occupational pension scheme was under funded.

Not so long ago, I overheard a story which goes this way:

“Once upon a time, there was an old fisherman by the river. He was a hard-worker for he knew that he would soon enjoy the fruits of his labor.

He took a pause and murmured to himself, ‘I remember the days of my youth—carefree, lax, and full of discovery—and the rest of my days were full of toil and hard work. Now that I am old, I would be harvesting the fruits of my labor and be spending the rest of my days in rest and repose, so I must work the hardest now so that I may gain more.’

Just by then, another boat passed. In the boat was a young man lying unperturbedly. The old fisherman noticed the young man.

‘Hey young lad, I see that you’re doing nothing—just watching the clouds fly and feeling the breeze blow. Why not start working so that you will have a good harvest of your labors when the time comes?’

The young man did not stir but gave a chuckle.

‘I already did!’”

End of the story.

Being young is not an excuse to plan and work for the future. When you’re young, you think most of the ‘present moments’ but as you become older and older you become more conscious of the future. You worry; thus, you work and work for the future, tediously and more diligently as the dawning of your life nears—you get a time-deposit account or a credible pension.

That ‘youthful tendency’ leads most of us people to cram later in our lives. And trust me my fellow youth and young adults, to consider a pension while we’re still young and at the brink of our energies is very important. Yes, you might be too comfortable with your employer’s company pension or you might not want to take a risk backing up your finances with a SIPP pension (which could also go Family or Group SIPP). Or worse, you might just want to do it later in your life, and take the example of the old fisherman. Nonetheless, in case you choose to follow the example of the young man, here’s an advice you might want to consider:

• If you’re still a working student, a personal pension best suits you. Why? Because it’s tax efficient!
• If you want a level-up, you could go to SIPP pension. A ‘Self- Invested Personal Pension’ offers a wider range of investment which puts the self-invested pension to be a pooling pension of a group.

They say that ‘life is all about choices’. Truly, no matter how I discuss, negotiate, or blabber here, the decision will be yours at the end of the day. Your choices could make you that old fisherman or that young man. You may ignore the idea of getting a pension, or you may do get one . But then, why not try applying for a pension since most of pension offers today allow very low contributions and they don’t withhold penalties for payment breaks? Save for the future while the times are still right, and while you can still do so.

Balance is very important, especially when we work. We work to improve our social and economic status, our relationship with others, and especially our selves. When we work, we take out so much from us, so then, it is also proper to take back what we gave out in that process—not just to take back, but to store what we take back to provide for difficult times.

So here comes the value of pension. In the first place, why do we have to get one? Simple! Because at any point of our lives, we would have to be independent and alone. Our parents will eventually die, our sons and daughters would have their own lives, and we don’t want to be a burden to any one, do we? Most importantly, we don’t want to be pathetic when ‘those times’ come, right? With sentiments of this kind, a personal pension would serve us best.