Pensions threat

Discussion in 'Finance, Property, Law' started by udipur, Apr 9, 2010.

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  1. udipur

    udipur LE Book Reviewer

    I was reading another post trying to blame baby boomers for some of our economic ills.

    It got me thinking about one of the looming issues that I have yet to hear voiced in public fora and I believe this is because those in the know desperately want to disguise it as long as possible.

    A lot of the baby boomers are fast approaching retirement and they will have been mass sold any number of pension deals through the years. Naturally there might be some benefit from property value rises but there will also be the reliance upon a steadily built up pot, from which an annuity will be paid.

    However these pots are going to start to be drawn upon in large numbers soon. The stock market has a number of large, institutional investors, many of which are pension funds. The companies in the market are not paying out large dividends en masse at the moment and the pension funds will still have to pay out to their policy holders.

    Therefore there is going to be a withdrawal of capital from the markets to fund this payout. This will strip value from the public companies and weaken their positions, which will have a knock on effect to future investments.

    The saving grace might be that some annuities are paid effectively on a par with the current interest rate so if you have a pot of £100k, you might expect £500 a year for perpetuity, depending on what type of policy.

    If they are defined benefit schemes (for which 7,400 companies are liable), then we get into a whole new kipshop. There are obligations to pay these out, the companies which hold them are significantly undervalued due to these obligations and the employees won't move because they can't get the deals elsewhere so the bill rises.

    Although the government has set up a scheme to combat this through a level of insurance, there will still be payouts on a scale that make your eyes water. This money will have to be found somewhere. The funds cannot borrow against their holdings because credit is expensive and the holdings are devalued so they will have to cash in their holdings, again bringing me back to stripping out the capital in the markets.

    Makes you think, doesn't it?
  2. yes obviously it compels one to think over the issue
  3. I think this perceived problem may pale into insigficance compared the inreasing Black Hole in Public Sector Pensions . One thing is for sure this country is heading towards a Pension Crisis and a lot of people are going to be disappointed , annoyed and much worse off than they thought they were going to be in their retirement .... and that includes those in the Public Sector .

    Edited to add .... Annuity conversion rates are now so poor I have delayed this action on one of mine hopefully until the situation improves in say 5/8 years time .... a gamble but it is also a fully paid up additional Life Policy at the moment anyway .