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For many of us, there has been little positive economic news to shout about in recent months and the pensions issues that emerged in February of this year have given us even more cause for concern. It was reported widely in the news that thousands of people could find that they end up losing savings put aside for pensions as a result of the new auto enrolment schemes that have been introduced by the government over the past couple of years.
Thanks to the Pensions Act 2008, every employer in the UK now has an obligation to make sure that certain staff are enrolled into a pension scheme, and contribute towards it On the face of it this seems like a great idea. However, the industry regulator – the Pensions Regulator – has said that a number of these pension schemes, in particular the smaller ones, could end up collapsing, which would mean that anyone who had their savings in one would lose everything.
The issue raised by the Pensions Regulator is with respect to master trust pensions – estimates put the number of small employers with fewer than 30 staff who have signed up to these schemes under auto enrolment at around 1.8 million. The number of people who might find themselves affected as a result has been predicted to be around a quarter of a million. Andrew Warwick Thompson, who is executive director for regulatory policy at the Pensions Regulator has said “There is a risk of these schemes falling over; there is a risk that members might lose their money.” He went on to say that there were concerns that some of the schemes were not being run by entirely competent people and that others were providing misleading information to consumers about exactly how the schemes were being run.
One such example is My WorkPlace Pension, a scheme investigated by the BBC that claimed it had £50m of pensions under management, handled by the respected city firm Old Mutual. However, when the BBC probed the organisation it turned out that it actually had none of those assets. Old Mutual confirmed to the BBC that it had no involvement with My WorkPlace Pension either.
The big problem with the affected schemes is that they are master trusts and these are not regulated by the Financial Conduct Authority. The only supervision provided comes from the Pensions Regulator and this happens at a much lower level of scrutiny. Unlike other types of schemes, if a master trust goes under there is currently no protection for cash that members of the scheme have paid into it. So, the first point to note is that if you don’t want to find yourself in such a sticky situation – if possible – avoid schemes that are master trusts. Instead, opt for a mainstream City pensions firm – which is regulated by the FCA (this is usually displayed on the website and in all documentation) as this will offer protection against the scheme going under.
If you are going to sign up with a master trust scheme – or you are being auto-enrolled into it – then find one that has the Master Trust Assurance Framework mark – currently only a few of the master trust schemes have received this, including the official government-backed scheme, National Employment Savings Trust (NEST), NOW: Pensions, SEI Master Trust, The People’s Pension and Welplan.
If you are looking for alternatives to supplement a workplace pension you can also opt for your own private pension, which allows you to choose the provider rather than relying on a scheme that has been picked by an employer. You could consider putting money into tax free ISAs The ISA allowance for 2015/2016 is now £15,240 (this limit will rise to £20,000 in 2017/18), which can be squirrelled away either in cash or in stocks and shares. Over the years these can built up to a fairly substantial sum.
Another secure option is to put your money into Government-backed National Savings & investment. Different types of savings accounts and bonds are available and they are virtually risk free thanks to the backing of the Treasury. Finally, you could opt for the more traditional retirement pots of property and savings, investing in something like a buy to let property to ensure income in your retirement and/or relying on regular savings accounts. What you choose will depend on the amount of security you feel that your retirement funds need.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read about Alex Hartley
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