Although public sector pension holders probably couldn’t have a much lower opinion of the scheme they have been paying into throughout their career as a public servant, more revelations have recently been unearthed to further exemplify the irresponsible approach adorned by those in control of hundreds of thousands of people’s retirement funds.
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While the public sector fund stares down the barrel of a deficit in excess of £1 billion, it has now come to light that those receiving in excess of £100,000 per annum from this beleaguered fund has more than doubled in the last three years.
Those benefitting from the huge retirement windfall are former headteachers, NHS consultants and former military personnel. Statistics suggest that this figure is expected to double once again over the course of the next five years as more and more leading figures within the sector hit retirement age. Exactly where this leaves the majority of the rest of the sector, is certainly unclear at best.
A deficit of this level cannot sustain the increase in demand which is on the horizon, this means that the most likely course of action will see those still in employment having to work longer into their life before being allowed to source their contributions and retire, and even when they do, the yearly amount is likely to be severely reduced.
So just how does an un-funded defined benefit scheme become so far gone that there is seemingly no way back? And what are the solutions?
An un-funded scheme essentially means that what you put in, you get back. So as payments are made into the fund, they are immediately distributed to those already in retirement. Exactly how this has led to such a deficit varies according to exactly who you listen to. Bad investments, a fall in bond values, bail-outs, recessions and the credit crunch have all taken their toll over the years undoubtedly, as well as many taking earlier retirement and receiving inflated pensions.
However, the Treasury are alleged to have been covering up inflated payments to senior figures, and have hidden liabilities in order to make the picture look slightly rosier. The truth is, it doesn’t look too great regardless.
As of April 2015, public sector pension schemes will essentially be locked into the country for good, no transfers will be allowed. It is hoped that by preventing significant savings from leaving these shores and finding a home in a more stable jurisdiction, the Government can begin to claw-back on the deficit. The sceptics remain unmoved, claiming that by forcing savers into keeping their funds in the UK, their monthly contributions will be increased while their retirement pot will be reduced. The truth is, the future is uncertain, and when it comes to retirement, uncertainty is perhaps the least desirable affliction out there.
Time to Say Goodbye
Those who have saved into a defined pension scheme, but who are now expatriates living overseas, can remove their savings from the quagmire of the UK for only the next six months. A QROPS offers savers the chance to benefit from stability, flexibility and control over savings. It’s an unfortunate bi-product of a fund in deficit that none of these options are available to those remaining in the UK.
Since the recent announcement that all un-funded defined benefit schemes are to be locked into the UK for good as of April, QROPS providers have seen enquiries increase by 300% in two months. It would appear that many view this as the right time to see what alternatives there are, rather than stay loyal to a public sector fund which even HRH Prince Charles recently called “not fit for purpose.”
These are worrying times for the UK’s future retirees, and for whichever Government will take on the deficit come General Election time next Spring.
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