News
Take control of your pension as no one else will
News that Amex has suspended employer pension contributions to its employees' stakeholder pensions for 18 months has sent a shiver down every worker's spine.
The thought that your employer can stop making pension payments to one's pension scheme at the drop of a hat is worrying to say the least.
While this is legal at the moment, from 2012 all employers will be required to contribute at least 3% to their workers' pensions, whether to a scheme chosen by the employer or to the Government's new system of auto-enrolled personal accounts.
Although 18 months may not seem a long time to suspend contributions, the payments made into a pension in the early years are the most important as they have longer to grow in a tax free environment.
Axa research shows that the loss to the final pension fund caused by a two year break in contributions of £300 a month to a stakeholder scheme would be £59,700 if the break occured at age 28, £39,800 at age 35, £22,400 at age 45 and £12,500 at age 55.
But it is not just the level of contributions which you need to keep an eye on. Investment performance is just as important.
Aon Consulting , the actuarial firm, says that workers need to boost their contributions because investment returns have fallen over the last month too.
Aon, (which incidentally cut contributions to its employees' pensions earlier this year), reports that defined contribution assets have dropped in value by 2.3% over the last month due to falls in world equity markets.
Meanwhile, employees in final salary schemes are suffering as well.
BP announced earlier this year that it is to close of its scheme to new entrants from next April, while Barclays is shutting its scheme to existing members.
Since April 2006, workers have had much greater flexibility as to how and when they contribute to their pensions, making it easier for everyone (except high earners) to make large contributions when they wish.
Defaqto pension principal consultant pensions and investments, Matt Ward, says: "Today's reality is that everyone needs to take ownership of their own pension. If your employer stops contributing, you may need to consider making extra payments in yourself or make alternative provision for retirement."
