In many meetings with new employees of our corporate clients over the last 12 months, the same reservations regarding pensions arise. They are mainly in response to the bad press in recent years in relation the financial crisis, and the effect on people’s pension due to the massive losses that occurred in the equity (stock) market. The public’s bad experiences with many final salary pensions and scandals in the 1990s has not helped a Pension Scheme’s reputation (Enron, Arthur Anderson and The Mirror Group.)
This lead to wide sweeping changes in the general business world but also in the Financial Services industry. The industry has invested significant time and resources to investigate how companies manage and administer their pensions, as well as employer’s responsibilities to employees.
This has removed a large amount of risk danger that existed in pensions, but negative attitudes towards the Pensions industry remains.
The fact that ‘Life-styling’ (an investment strategy that matches how far or close you are to retirement) and Managed Portfolios or a fund of funds (an investment that combines attitude to risk and age) are now standard techniques to enable a diversified and therefore risk responsible approach to investing for retirement.
There is one other massive factor that makes pensions such an attractive investment: The tax savings!
The government allows all income tax to be saved on pension contributions up to £50,000 per year. This means that if you are a higher rate tax payer, any other form of investment would need to return 40% just to compete with your pension. Then there are National Insurance savings too.
Over the long term, these savings and therefore returns result in growth that is compounded over a person’s working life which can make all the difference when it comes to their retirement.
At Cedar House Financial Services, we help each individual member create a pension fund to suit their needs. We consider attitudes towards risk, and our extensive knowledge of fund performance to select appropriate investments. As part of Cedar House’s service, all pensions are reviewed regularly to ensure performance is in line with member’s expectations.
Dean Gerschlowitz