Maggie Fleming looks forward to the 2005 Budget and hopes that the financial promises made for Civil Partners are implemented in full.
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Over the last few years, it’s been difficult to interest people in pensions. If you suggest that they really ought to invest more in their pension funds, they get shifty and mutter about how their father’s pension turned out to be useless or make some feeble excuse. It’s clear that the word has very negative connotations for many people. They think ‘Maxwell’ and ‘Equitable Life’ when they should be thinking about being able to afford a decent standard of living in old age.
So let’s make a determined effort to think positively about pensions again. Of course, there have been problems but they may not be as bad as you think. For three years from March 2000, the stockmarket went down dramatically and pensions suffered along with all other equity investments. But markets have picked up in the last two years and your pension funds should be making up some of the ground they lost after the technology bubble burst. Besides, having a pension doesn’t necessarily mean that you have to invest in the stockmarket – I would recommend that most people, especially younger people do – but if you are really risk averse or close to retirement, you can invest your pension money in bonds, property or cash funds.
Maybe we all just expect too much from pensions. Our parents’ generation retired young, with a good final salary scheme paying them a generous index-linked pension until death. Not many of us as so lucky these days. Big companies have closed their final salary pensions to new employees and there is even turmoil in the public sector, with schemes like the Local Government Pension Scheme increasing the retirement age for members.
With final salary schemes an endangered species, you should join one if you get the opportunity and you should also consider buying additional years in the scheme if you are allowed to. The great thing about these schemes is that the employer makes a commitment to pay an amount linked to your salary and therefore takes all the investment risk.
For those of us not lucky enough to be in one of these schemes, we have to bear the investment risk ourselves. So, if our pension investments do badly, we get a lower pension than we had hoped. But, hey, that’s real life for you. It shouldn’t be a reason for sitting on your backside saying you don’t want to invest in a pension because you might lose money. And how will you live in retirement if you don’t have a pension? Rely on the State? Rather you than me. And let’s not forget one of the really positive things about putting money into a pension – tax relief!
Of course, there are those who say that they don’t need a pension because their property is their pension. Property has been a good investment in the past but it may not perform so well in the future. However, from April 2006, people will be able to put residential property (including your own home and buy to let properties) into their pension funds. So you will be able to have the best of both worlds. But don’t even think about it unless you have at least £200,000 in your pension pot – best get saving now!
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