Could guarantees make pensions more appealing?

MOST people pay careful attention to their wage packets. But they tend to be much less interested in their pensions, even though their financial well-being in the last 20-30 years of their lives depends on them.

That is a great pity, since responsibility for pension provision has been steadily shifting from the company to the individual. Around 70% of American retirement schemes are now defined-contribution (DC) plans, under which the final pension amount is dependent on investment performance. In Britain the proportion of pension assets represented by DC plans rose from 8% in 2001 to 39% in 2011.

Poor stockmarket performance has reduced the return that investors get on their savings. Meanwhile, very low interest rates and improved longevity mean that a much larger pension pot is required to generate a given retirement income. According to Alexander Forbes, a consultancy, the average British 30-year-old in 2000 could have expected a pension contribution of 12% of wages to generate a retirement income of 67% of their final salary; a 30-year-old today could expect an income worth only 39% of final salary.


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