UK Pensions - How Much Of A Crisis?

It's a fact that the UK has an ageing population. Right now the birth rate in the UK is falling while the number of people claiming a state pension is growing so in the future will the government be able to cope with the increasing stresses and strains on the current pension system?

Under the current system, every pensioner is entitled to a basic state pension of £84.75 for a single person or £134.75 for couples. Along with this, pension credits are provided by the government which should ensure a minimum income level for pensioners so that they can benefit from a more comfortable life. These levels currently stand at £114.05 for a lone pensioner and £174.05 for a couple.

So Where's The Crisis?

It is important to know that the state pensions are not in trouble, although some organisations and individuals gripe that they are far from perfect. The real issue is for occupational pensions, often known as company pensions.

It has long been the case that a worker pays a percentage of his or her wage into an occupational pension and then the company matches all or a proportion of that investment. This gives the company a pension fund from which it has to pay out a pension to that employee on retirement.

The method of paying out these pensions that has come under the spotlight is the final salary pension which is where the company agrees to pay a worker a pre-specified percentage of the wage they were on when they retired for the rest of their life.

The reason these have become less popular with companies is that they will regularly invest their pension fund in stock market portfolios and bonds which carry some degree of risk. Thus if the stock market falls in a major way, this pension fund shrinks. And yet the outgoings from this finite pool of money stay the same, meaning the fund gets smaller still.

In some cases the fund is lower than the pension payouts and the companies are legally bound to make up the deficit themselves. This has led to many organisations stopping their final salary pension schemes altogether for future employees.

what About Private Pensions?

Private pensions schemes have also had the focus pointed towards them in years gone by. In the early 1990s there was a huge miss-selling of these prvately run pension schemes many of which, it later turned out, were worth less than the occupational pensions people had swapped from.

This has led to a lack of trust in the pension market as a whole which has meant some people are reluctant to save for a pension in any recognisable and formal way. Hence the possible pensions crisis the UK might be about to experience.