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Don’t Mention the Pension

Have you heard on the news recently that because of the ‘pensions crisis’ we might all have to work until we are 75?! But what is a pension and what’s the crisis all about?

What is a Pension?

A pension is a long-term savings plan or scheme. You save in the scheme, by putting money into it every month until you retire. The pension company then invests that money in the Stock Market, to try to increase the value of the pension.

So, when you retire, you get a lump sum of money and the remainder is used to give you a regular income for the rest of your life - it is basically your salary when you retire!

There are two main types of pensions. A State Pension (run by the Government) and a Private Pension.

When we work, part of our salary goes towards National Insurance. That makes up the State Pension.

On top of that, you can also invest in a Private Pension. There are Occupational Pensions, which are offered by employers to their employees, and Personal Pensions which are open to anyone employed or self-employed.

Is It Important to Have One?

It is important to ensure that you have a good pension so you can have a happy and comfortable retirement - we all need money to live well. But some people do not believe that a pension is the best, or safest, way of securing money for your future.

So, Why is There a Crisis?

First of all, the Stock Market hasn’t performed brilliantly and this has affected the pension companies and their funds as they invest heavily in stocks and shares. The result is, many pensions are actually losing money! People retiring are NOT making as much as they expected, resulting in many of the older generation having to remain in work just to make ends meet. We are all living longer and the pension system is just not coping. Fat cat bankers and big industrialists are alright of course, because they have private pension pots with millions of pounds in them. Many of us are just not bothering with pensions at all as it seems we can’t depend on the pension funds.

And remember, the capital amount we put into our pensions we never get back! The pension companies will only ever give us a percentage of the sum saved in the pension, but not the whole lot. Some say it’s better just to stick the money away in a high yield deposit account (a deposit account which gives a larger amount of interest than usual). Might be better – what do you think?

By Alain Benaim - Investment Banker


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