With poor investment returns over recent years, increased lifespan coupled with the collapse of the UK Stock Market in 2008, the collapsing stock markets have had a huge impact on all investors. In particular, pension funds that are one of the major investors. A combination of many these factors have led many employers to use the collapsing market as the long awaited opportunity to revaluate the cost of providing future pension benefits. This revaluation has led to the closer of many Final salary pension schemes (Defined Benefit), only to be replaced with a cheaper Defined Contribution Pension scheme (Money Purchase).

So What Has Led to the Crisis?

In the days of high investment returning the introduction of Defined Contribution Pension, many companies' Final Salary Pension funds were in surplus as a result of these surpluses:

Some Companies use the surpluses to find redundancies
Some take pension holidays
Government changes on how pension funds are taxed (estimated loss in growth being £150 - £225 billon) and the reported occupational pension shortfall (£160.0 billon).

The new Defined Contribution Pension Scheme:

Higher cost of regulation
High cost of pension fund management
Lack of new people taking pension
Products are complicated and inflexible
Low wages
Pension miss-selling

Goverment Solutions

The state solution is to raise the retirement age limit; this saves money and introduces another tier .

Employer Solutions

Your employer will normally deduct your contribution from your pay and send it to your pension provider. Most employers choose to close their final salary pension scheme, and opt for a cheaper pension scheme, Defined Contribution Pension (money purchase pension), and reduce their contribution.

In Summary

The Crisis is real
We all have a saving responsibility, so during our working lives, savings is important
The balance has clearly shifted to make some provision for retirement

Money Puchase Personal Pension Plan

Personal Pension Plan (PPP) is a UK tax-privileged individual investment scheme, with the prime purpose of building a capital sum to purchase your retirement benefits, although the capital sum may also be used to provide death benefits before retirement. Insured Personal Pension Plans, known as Stakeholder Pension, with the administration charges capped at a low level of 1% of the fund.

Who Can Contribute to the Personal Pension Plan?

Contributions can be made either from the individual or from an employer.

How Much Can Be Contributed Each Year.

You can put in an amount up to 100% of earned income, or the prevailing annual allowance. The allowance for tax year 2008/09 is £235,000.0 for those at the lower end of the earnings scale. Non-earners are allowed to contribute up to £3,600.00 per year.

The Pension crisis is a complex combinations of many factors:

With the advances in medical treatment, better health care has increased our life expectancy. This has a had financial impact on pension providers, including the Government paying pensions for longer
Low wages earlier in life, plus high cost of living all adds to the pension crisis; those on low wages are unable to save enough during their working life
- Low skills - this is a problem that reflects on low pay
- Lack of new people taking pension
- More people become reliant on the State to provide more financial assistance, including pension in retirement
Unemployment - as the number of people not being able to earn increases, they are unable to save or pay taxes. This further increases the burden on the State, therefore adding more fuel to the crisis in the short term and long term.
In the early nineties days of high investment returns many companies Defined Contribution Pension Schemes (Final Salary schemes). Many of these pension funds had surplus in excess of One Billon Pounds, however many companies used the accumulated surpluses to:
- Fund redundancies
- Some take 3 years pension holidays (stop contributing to the pension, hence depleting the fund)