- The slide in the FTSE 100 could reverse all the rises since the early 1990s, as the recession bites – leaving a multi-billion black hole
- Remaining final salary pension schemes are likely to close, and private pension values dwindle
- There may be no escape from a return to a higher, state funded pension.
Credit crunch puts pressure on company pensions –
only the state can now offer security in retirement
Britain’s biggest pensioner organisation, the National Pensioners Convention (NPC) has called on the government to strengthen the state pension system in light of reports casting doubt on the future of decent company pension schemes.
The call comes as the National Association of Pension Funds is expected to announce on Monday (Jan 26) that 25 major companies will close their final salary pension schemes to existing members, and replace them with less secure defined contribution (money purchase) schemes.
The NPC has criticised successive governments for relying on good quality occupational pensions as a way of avoiding having to pay a decent state pension. But this approach is now unravelling:
- At least 75% of final salary occupational pensions have closed to new entrants
- The current economic crisis is estimated to have wiped £250bn from pension funds
- The average private pension pot will eventually give a single man of 65 an annual income of £1,960. A pension pot of £100,000 will give you a yearly sum of just £4,500
- Up to 9m existing workers have no pension provision other than the state
The NPC is calling for the state pension to be set above the official poverty level of £165 a week for all men and women and linked to earnings or prices (whichever is the greater).
This could be financed through a number of measures, including:
- Using the surplus in the National Insurance Fund, which currently stands £46bn, and is forecast to grow to £114bn by 2012
- Abolishing the upper earnings limit on national insurance contributions would raise at least £8bn a year
- Scrapping higher rate tax relief and tax avoidance (through tax havens) on private pension contributions could raise up to £40bn a year