Future of pensions

Most people pay no attention to pensions. This has to change. We’re living longer – who’s going to fund that? We have to plan for our future, and our children and grandchildren’s futures.

Future of pensions


More than half of children born in developed countries today will live to the age of 100 (according to the Golden Age Index).  This is incredible for the human race and medical advancements but there are serious implications for the global workforce. Using today’s rationale on how pensions are calculated, that would mean people in the UK will have to work and save until they are at least 80. How is that realistically going to work with employers and workplaces? 

However, let’s return to the nearer future. The next Budget announcement will be fascinating; the public opinion is that incentive schemes and savings for the next generation will be at the top of the agenda. Mr Financial agrees with many people’s opinions that there’s going to be a marked shift in expectation and career planning. Linear careers will be relegated to the past and flexible working will be at the forefront. Employers will need to engage employees on retirement planning.

It’s amazing to think that not long ago, a final salary pension was not uncommon.  Now, pensions are mostly defined contribution schemes and are incredibly complicated and convoluted. The “dictionary definition” of a defined contribution pension scheme is that it is a pension scheme with a defined contribution for employees and employers, but not a defined outcome. The pension received by the employee will depend on several factors, including investment performance and what percentage of salary has been contributed.

What does this mean for the wider market and what should employers and employees look out for?

An as employee, when you take a new job, it’s so important to understand the pension into which you’re being auto-enrolled. As an umbrella concept, there’s a minimum that you contribute and your employer matches it so it you choose to put in 2% of your salary, they have to match 2% but if you put 5% in, they have to match it to 5%. So you’re getting more money in the long run. If you can manage with a lower monthly income (but knowing you’re getting a larger pension) then it’s right and savvy to choose to contribute the maximum you can to your pension pot.

For employers there are so many options as to which scheme you use for your company. For example there’s the Master Trust structure of Defined Contribution pension scheme. Use of Master Trusts has doubled amongst the FTSE 350 since 2015, a rise of 7%. Even if you are not a FTSE 350 firm, it is worth considering that trends in this area normally follow a ‘top to bottom’ mentality; what the FTSE 350 does today, your firm is likely to look at tomorrow.

The nature of a Master Trust scheme is that many employers sign up to effectively use the same pension scheme for their staff – each is known as a ‘participating employer’ with the Trust.

Mr Financial urges employers to select schemes in which employees are able to take advantage of all of the investment options found in any Defined Contribution pension scheme while still being able to take advantage of popular options, such as flexible drawdown. Happy employees equally happy employers. Symbiosis.

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