Money Savers May Be Offered Pension Guarantees

Published on in Banking News by

Those who save more money may be asked to make higher pension contributions, according to new Government plans.

bank accountsThe plans have appeared in a report from the Government, entitled Reinvigorating Workplace Pensions. The main point of interest is that these news plans are looking to offer those in defined contribution (DC) pensions a levy.

This levy will require more expensive payments from workers but, in turn, it also offers a fixed and guaranteed income should they retire.

Current DC plans involve both the employee and employer making regular contributions, but it is not always guaranteed. Understandably, this is has led to such pension plans being considered poor investment choices, arguably reflecting the stock market as a whole.

Additional Plans

Steve Webb, the Pensions Minister, also suggests another version of this DC plan where, in the case of a saver moving jobs, the DC can be taken with them, ideally as a money pot to put into a new pension plan with the new employer.

Traditionally, companies often end up paying for their former employee’s retirement income, something that can be a financial drain for many. These plans are often referred to as gold-plated plans, and they are being dropped by various companies each year, purely because they are too expensive.

In addition to these plans, there are also considerations for a rating system. This system would rate pension firms, allowing information on the quality and financial information regarding the service, such as expenses and value received.

Potential Benefits

As already mentioned, the new scheme provides an alternative to gold-plated plans for companies, offering a cheaper solution in the form of DC plans that only focus on the staff currently being employed.

For employees, the proposed levy would be off-set by the guarantee of a minimum wage upon retirement, which would make for an arguably wise investment plan in contrast to traditional pension schemes.

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