Dream on cwatters.
In order to get anything like a decent pension, you need a fund value at retirement of astronomical proportions.
For example, if you were to try and fund a pension now to a value of £20,000 per year (very modest by salary standards), and assuming an annuity rate of 5% (which would be fortunate for a 55 year old), you would need a fund value of £400,000.
Two points emerge from this simple sum;
1. If you have a potential working life of 30 years, you would need to build a fund of in excess of £13000 per year.
2. Now I know that compounding up over 30 years will have a significant effect on the value of the fund, but so does inflation. What is £20,000 going to be worth in 30 years time?
There is much more to this than my over simplified submission here, but you can see from this example, exactly why companies all over are closing final salary schemes. The bottom line is, they simply can't afford them.
The UK government is running scared, because it knows it has a potential time bomb on it's hands. It has struggled to try to move it's responsibilities on to the private sector, and then promptly (via Gordon Brown) dips it's mucky little hands into the funds by way of taxing the dividends that used to be tax free. It then wonders why, financial professionals are not keen on recommending money purchase schemes! The stock markets around the world have been abysmal performers over the past three years or so, and consequently funds have been showing "negative growth". That's a nice way of saying, overpaid fund managers have not been producing the goods.
In around ten years from now, the "baby boomers" (those born just post war) will all retire at once, and then this problem will really come home to roost. You end up with a retired population that cannot be supported by those left in work.
Anyone that has a final salary scheme, HANG ON to it!
