Are workplace pensions worth it?

Woman Are workplace pensions any good? Ask a room full of people and there will be some that say yes, some that disagree but mostly people will have no idea.

If you think pensions are a good idea then you'll save into one, but if you don't you'll make the effort (hopefully) to save in another way. Having no idea about whether pension are good or not is the most dangerous camp to be in because ignorance breeds apathy.%VIRTUAL-SkimlinksPromo%
The government is trying to capitalise on that apathy with the introduction of auto-enrolment and that people will be too apathetic to leave their pension scheme after being automatically opted in.

For those whose interest in pensions is sparked by auto-enrolment, they may have some help in deciding whether the scheme they have been opted into is worth it or not.

The Office of Fair Trading (OFT) has decided to launch a study to determine whether company pensions are good value and how much workers can expect to retire on.

It has decided to look at workplace pensions because of auto-enrolment, which will see the numbers of people saving into pensions swell from four million to between six and nine million. The OFT expects the new savers to save an extra £11 billion a year into pensions in five years' time.

Find out how you can maximise your pension plan by downloading this free booklet here.

It's going to look at a number of factors, including how the market develops competitively, whether there is enough pressure on pension providers to keep charges low, how much information about charges is available, and whether smaller firms are making the right decisions for their employees.

This is all very worthy, and all these questions need answering. Of course you can only make a judgement on the market once it's up and running but surely some of these concerns should have been pre-empted.

Why hasn't the OFT looked into pension charges already? Surely it's always been important for pensions to be good value and to deliver enough to pensioners in retirement no matter how they save, not just through auto-enrolment.

The OFT plans to finish its consultation in August 2013, by then hundreds of thousands of people will be auto-enrolled. If their schemes are found wanting, what happens then? Will they be removed from schemes or will the schemes be forced to change their charging structure?

Competition is important but the OFT knew auto-enrolment was coming, it should have laid out to consumers, employers and most importantly the pensions industry, what it expects.

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Are workplace pensions worth it?
Figures from charity Age UK show that 29% of those over 60 feel uncertain or negative about their current financial situation - with millions facing poverty and hardship. Even though saving for retirement is not much fun, the message is therefore that having to rely on dwindling state benefits in retirement is even less so. To avoid ending up in this situation, adviser Hargreaves Lansdown recommends saving a proportion of your salary equal to half your age at the time of starting a pension. In other words, if you are 30 when you start a pension, you should put in 15% throughout your working life. If you start at 24, saving 12% of your salary a year should produce a similar return.
Many older couples rely on the pension income of one person - often the man. Should that person die first, the other person can therefore be left in a difficult position financially.
One way to prevent financial hardship for the surviving person is to take out a joint life annuity that will continue to pay out up to 67% of the original payments to the surviving partner should one of them die.

The disadvantage of this approach, however, is that the rate you receive will be lower. Again, the Pensions Advisory Service on 0845 601 2923 is a useful first port of call if you are unsure what to do.

Around 427,000 households in the over-70 age groups are either three months behind with a debt repayment or subject to some form of debt action such as insolvency, according to the Consumer Credit Counselling Service (CCCS).

Its figures also show that those aged 60 or older who came to the CCCS for help last year owed an average of £22,330. Whether you are retired or not, the best way to tackle debt problems is head on.

Free counselling services from the likes of CCCS and Citizens Advice can help with budgeting and dealing with creditors.

Importantly, they can also conduct a welfare benefits check to make sure you are receiving the pension credit, housing and council tax benefits, attendance and disability living allowances you are entitled to.

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The average UK pensioner household faces a £111,400 tax bill in retirement as increasing longevity means pensioners are living on average up to 19 years past the age of 65, according to figures from MetLife. And every year in retirement adds an extra £5,864 in direct and indirect taxes based on current tax rates to the costs for the average pensioner household. You can be forced to go bankrupt if you fail to pay your taxes, so it is vital to factor these costs into your retirement planning.It is also important to check that you are receiving all the benefits and tax breaks you are entitled to if you want to make the most of your retirement cash.

The cost of a room in a care home in many parts of the country is now over £30,000 a year, according to figures from Prestige Nursing and Care. So even if the prime minister announces a cap on care costs - last year the economist Andrew Dilnot called for a new system of funding which would mean that no one would pay more than £35,000 for lifetime care - families will still face huge accommodation costs. Ways to cut this cost include opting for home care rather than a care home. Jonathan Bruce, managing director of Prestige Nursing and Care, said: "For older people who may need care in the shorter term, home care is an option which allows people to maintain their independence for longer while living in their own home and should be included in the cap." However, the only other answer is to save more while you can.
Older Britons are often targeted by unscrupulous criminals - especially if they have a bit of money put away. For example, many over 50s were victims of the so-called courier scam that tricked into keying their pin numbers into their phones and handing their cards to "couriers" who visited their homes. It parted consumers from £1.5 million in under two years. Detective Chief Inspector Paul Barnard, head of the bank sponsored dedicated cheque and plastic crime unit (DCPCU), said: "Many of us feel confident that we can spot fraudsters, but this type of crime can be sophisticated and could happen to anyone." The same is true of boiler room scams that target wealthier Britons with money to invest, offering "once-in-a-lifetime" opportunities to snap up shares at bargain prices. Tactics to watch out for include cold calling, putting you under pressure to pay up or lose the opportunity for good, and claiming to have insider information that they are prepared to share with you.
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