Jargon Filled Headlines

I’ve had a couple of questions this week asking if the proposed changes to pension funds are something people should be concerned about (see the article linked below). Language/Jargon around financial products, especially pensions, can be confusing and opaque at the best of times. So, I wanted to address this and clear a couple of bits up.

Rachel Reeves is working hard to try and get the British economy back up and growing. One of the areas she is looking to generate growth from is pension funds. This week she announced that Defined Benefit pension schemes will be allowed to invest surplus built up within the schemes. The plan here is that the big pension funds will use the cash they are holding and invest in UK based companies thus providing an element of growth. But there have been warnings that companies may not choose to put pension fund money into additional investments and that this move may not generate the growth that Rachel Reeves is hoping for.

These types of headlines around ‘pension funds’ can feel like they will have a big impact on everyone, we all have pensions after all. But, does this have any impact on you? The truth here is that although it sounds like a big move, it most likely does not impact your pensions. These measures are only aimed at Defined Benefit pension schemes. These used to be the norm but have seen a huge decline in the last 10+ years. Whilst these ‘gold plated’ pensions are fabulous to have if you do, there are only 683,000 active members of Defined Benefit pension schemes. Most of us will have a Defined Contribution Scheme which is not impacted by these proposed changes.

Understanding what type of pension savings you have can help cut out the noise of headlines that may sound scary and big but do not impact your position. If you are unsure about what type of pensions you have and if you are on track for retirement, I can conduct a pension review for you as part of a financial coaching package.

Key Articles I Have Read This Week:

• Rachel Reeves plans changes for pension funds, but not everyone will be impacted: Read it here

• What about the other plans that Labour has for growth? They released plans on Wednesday that the BBC cover here: Read it here

Investment Markets This Week:

Best Cash Savings Rates This Week

💰️ Defined Benefit Pension Schemes 💰️ 

Also known as Final Salary pensions, these ‘gold-plated’ pensions pay you a guaranteed income for life at retirement based on what you earned whilst working for your company/government department. These are different than Defined Contribution pensions which you actively pay money into and have no income guarantee.

Given the nature of a Defined Benefit scheme, the responsibility to have enough in the pot to pay your pension income rests with the company/government rather than you. This is a big burden on companies and as such we have seen these schemes becoming more and more rare with a 68% decrease in members since 2013.

If you have one of these, 🥳 , they will form a valuable basis for your retirement planning. If you don’t then you need to be sure that you are saving enough to meet your needs later in life. ❓️ Want to do a pension health check? I can help.