PENSIONS

1

• PENSIONS
• THE SAVINGS GAP
• ALTERNATIVES

2

3
NOT ENOUGH PENSIONS WORKING POPULATION 18
24 18 in Occupational Pension Scheme 2 in
Personal Plan 25 34 42 in Occupational
Pension Scheme 9 in
Personal Plan 18 24 80 NO PENSION 25
34 49 NO PENSION
4
INTER-GENERATIONAL DIFFERENCES Age 70s
CONSIDERABLE INEQUALITY IN INCOMES 40
OF 75 -STATE MEANS TESTED
SIGNIGICANT ASSET HOUSE SOME
BENEFITTED FROM OCCUPATIONAL
PENSIONS 60s BETTER OCCUPATIONAL PENSION
COVERAGE SMALL PERSONAL PENSION
OWNERSHIP HIGH HOME OWNERSHIP
PEPs AND WP BONDS
5
Age 50s HIGH OCCUPATIONAL PENSION COVERAGE
WOMEN PENSIONS IN OWN RIGHT
SOME PERONAL PENSIONS EVEN HIGHER PEPs
AND HOME OWNERSHIP 40s SHIFTED TO DC
THINKING OF AVCs GOOD HOME
OWNERSHIP REASONABLE PEP/UT COVERAGE

6
Age 30s STRONG DC POOR
CONTRIBUTIONS HOME OWNERSHIP
HIGH 20s ASSETS IN DECLINE
STUDENT DEBT LESS LIKELY TO OWN
HOME SMALL INCREASE IN SHARE
OWNERSHIP
7

Source Government Actuarys department, Survey
of Occupational Pensions
8

Source J and Tanner, S (1999) Household saving
in the UK, Institute for Fiscal Studies
9

Source Department of Social Security (2001)
Pensions Income Series, 1999-2000
10

Proportion of people with different financial
products, by age
Source NOP Financial Research Survey, 2000
11
FINANCIAL VALUE OF A PENSION
Plus Cons MAJOR INCENTIVES LONG TERM LOW
COST INFLEXIBLE LONG TERM RETIREMENT
OPTIONS EMPLOYER INPUT INVESTMENT DECISIONS
12
PENSION OPTIONS AT RETIREMENT MONEY
PURCHASE ANNUITY PHASED DRAWDOWN ANNUITY
PURCHASE _at_ 60 (m) APPROX 500 pa 10,000 pp
Guaranteed 5 years 3 escalation
spouses 60
13

Source NOP, Financial Research Survey, 2000
14
ECONOMIC FACTORS FOR SAVING SHORT LONG UK
BASE RATES US BASE RATES EUROPEAN BASE
RATES INFLUENCES?
15

TERM
RISK
EFFORT
ISSUES
CONTROL
VOLATILITY
CHARGES
ACCESS
16
SAVINGS CHOICE 1st 2nd 3rd AVCs/SH ISA
SHARE PLAN MORTGAGE PAY OFF 2nd PROPERTY NS
INVESTMENTS BUILDING SOCIETY ENDOWMENT FRIENDLY
SOCIETY LOAN REPAYMENT OTHER
17
AVC RETURNS SINGLE PREMIUM 1 year 75
(40) 35 (22) 5
years 19 (40) 11 (22)
10 years 13 (40)
7.25(22) Assuming 5 p.a. growth nil
charges
18

• SHARE OWNERSHIP
• HISTORICALLY APPROVED PLANS
• SHARE SAVE 1.75m PARTICIPANTS
• 
  1200 schemes
• PROFIT SHARING 1.25m PARTICIPANTS
• 
  900 schemes
• CO-SHARE OF PLANS 450,000 PARTICIPANTS
  
  3750 schemes

19
SHARE OWNERSHIP NEW EMPLOYEE SHARE
PLAN FREE SHARES 3,000 PARTNERSHIP
SHARES 1,500 p.a. on 10 max 125
p.m. MATCHING SHARES 21 PARTNERSHIP
20
EQUITY RELEASE AVERAGE PRICE OF A
HOUSE 100,000 75 EQUITY RELEASE
INCOME YIELD Net 15.20 pw gross 100
pw (Joint Life 3 escalation Annuity) 2nd
PROPERTY? MORTGAGE REPAYMENT?
21
FORMULA FOR RETIREMENT SHORTFALL x 100
lt4.25 OK TO RETIRE CAPITAL CAN YOU
CALCULATE TAX?
22
THE PLANNING APPROACH ASSESS FUTURE INCOME -
PENSION FORECASTS - STATE
PENSION - EARNINGS? ASSESS
FUTURE EXPENDITURE - TODAYS SPEND

- NEED MORE/LESS
- DO NOT
CHANGE LIFESTYLE CALCULATE PRESENT FUTURE
ASSETS
- ASSUME WHAT
YIELD? COMPARE COMPLEX OR SIMPLE
23

• SUMMARY
• EARLY RETIREMENT A LUXURY GOING FORWARD
• REAL ISSUE IN PERSUADING YOUNG PEOPLE TO SAVE
• TOTAL ASSETS INTO INCOME PENSION
• PENSION NOT FLEXIBLE ENOUGH
• BEWARE STATE PENSION GUARANTEES
• MIXED SAVING MORE EFFECTIVE
• MORE CHANGE ON THE WAY!