While it seems that the cost of so many different services and products depends upon where you live in the country, you can now add your pension payments to that with news that Legal and General have just completed a pilot a scheme which will see high pension payments in areas where life expectancy is short.  The scheme is now being rolled out nationally, although there are concerns that for those receiving higher pensions, people in other areas of the country may see their pension payments slashed.

Legal and General have also announced plans to consider the lifestyle of their customers as another factor for the level of pension payments they will receive, with concerns that the more complex system will allow pension providers to hide reductions and also slash their own costs.  Even though the difference between the top pension payments and the lower rates (varied by region) will initially add up to no more than two or three percent, there is obvious potential to increase this figure in due course. 

However, there are many supporters of the scheme with concerns that those living in low life expectancy areas are actually subsidising the payments of the more wealthy, affluent areas.  Perhaps there is something in the scheme , but then again what would happen if you moved from one area of the country to another in retirement? What would happen if you moved overseas?

There are still many questions to be answered, but it seems that the whole industry will now move down this path – another postcode lottery!

As far as crazy questions go this is probably one of the best you have ever seen! Why on earth would you want to think about your pension and your retirement as soon as you have started work? The really crazy thing is that you should be thinking about your retirement the minute that you have any surplus cash, and funds which you can put away.

While for many of us currently in employment, our retirement date has been further pushed back to 65 years of age, it is never too soon to start saving for your pension, and making use of all of the latest tax incentives you can take.  While the retired population of today have a state pension coming in, even though on many occasions it is being reduced year on year in real terms, this is a “luxury” which many of us currently in employment will not have. 

The social services system in the UK is under great strain, and while there are plans afoot to transfer funding to the people who actually need it, there is no doubt that as the population grows both naturally and through immigration, the benefits we take for granted today may not be their tomorrow.  There is also the double whammy of an ever ageing population, which will take more and more out of the state pension and benefits pot.

The UK government have for some time been very vocal in their support of private and company pensions schemes, offering  a whole range of tax incentives for those looking to move away from the state system.  While this is may seem like a give away, it is really an investment into the future, and a way in which they can try to take some of the pressure off the state system. 

However, the governments plans to encourage private and company pensions are in disarray because of :-

· a lack of protection for many company schemes.
· increasing tax revenues from pension investment income.
 
As they say, on one hand they giveth you and on the other they taketh…..

While there are up top 540,000 ladies over the age of 60 who do not receive any form of UK state pension, many are not aware that for a relatively small one off payment they will actually be able to fill the gaps in their national insurance contribution record.  This will then make them eligible to receive a minimum pension of 25% of the current state pension - amounting to some £1,000 a year.  So how can this be?

Unless a person in the UK has contributed 10 years of national insurance in total, they are not eligible for the state pension.  As there were many ladies in the past who initially worked, then married and left employment to bring up a family, some were not in a position to contribute for the full 10 years.  Little publicised government legislation allows those in retirement to cover the shortfall, and bring their record up to the 10 year minimum requirement  For those 65 years of age, or over, they will be able to claim back pension of approximately £1,000 a year, back to the year they turned 60.

Quite why this interesting information has not been more widely covered by the financial press or the government advisers remains to be seen, but it could prove priceless for many.  It will be interesting to see if the vast array of Independent Financial Advisers out there actually look to take this news on board.  As more and more pensioners struggle in later life, the £1,000 a year income could prove vital.

While there have been numerous changes in the pensions market over the last few years, the SIPP has remained the number one pensions investment vehicle for many, but why? For those who have not come across a SIPP, it is a Self Invested Personal Pension, basically your own pension pot which you can use to invest in a wide range of authorised investments. 

The type of investment which you can bring into a SIPP include :-

1. Stocks and shares listed on a recognised investment exchange.
2. Options which are traded on a recognised investment exchange.
3. Authorised Units Trusts, OEICS and UCITS funds.
4. Unauthorised investment funds which do not invest in property.
5. Deposits accounts.
6. Commercial property.
7. Borrowings to fund part of future investments.
8. Traded endowment policies.

There are also a number of more obscure investments which are allowed, and the list can and does change on a regular basis.

The government have specifically precluded investments in social housing, as there is scope for misuse of the system, e.g. if you were to buy your own house with pension funds, what would happen if you missed the rent payments, what is a fair rent, etc.  Originally the authorities had intended to allow social housing investments, but they quickly changed their minds as weird and wonderful arrangements were being arranged to effectively abuse the system.

The main reason why SIPPs have become so popular is the fact that while administered by an authorised SIPP provider, you have the control over where and when your funds are invested (within the regulations).  This cuts out much of the extra cost associated with a paid adviser, but there is also the risk that you may actually get it wrong!

While the government will no doubt claim some responsibility for the recent fall in pension fund deficits, the main reason is the rise in stock markets over the last 24 months - although this rise may be in danger as world stock markets continue to suffer from the US lending crisis. 

A recent survey by Lane Clark & Peacock found the top 100 companies in the UK have seen their pension fund positions turn from a £36 billion deficit to a £12 billion surplus over the last 12 months.  While the main reason has been the rise in stock prices, many have also undergone major rationalisation of their pension arrangements, adding extra funding, converting a number of final salary schemes in to money purchase, and reeling in future pension payments for existing members.   So is the worst now over?

While this reprieve has been welcomed by many, especially current and future pensioners, the situation could take a turn for the worse as quickly as it has picked up.  There are a couple of factors to take into account, including :-

Worldwide Stock Markets

Worldwide stock markets have fallen sharply over the last 2 weeks, with many forecasting further falls to come.  This will have an immediate impact upon the funding situation for many pension schemes, and could see some fall back into deficit.

Life Expectancy

Forecasting life expectancy is a problem which has blighted the industry for some time, and if as expected official life expectancy figures rise in the future, the industry may well be caught out again.  Even the smallest error in forecasting the average life expectancy can have a major impact on the liabilities of some of the larger pension funds - possibly increasing individual fund liabilities by hundreds of millions of pounds.

While it is encouraging to see the recent turn around in pension fund liabilities, there is still much work to do.  If the worldwide economy were to take a major downturn then this would reduce the amount of extra funding available from industry.  Fingers crossed we have seen the worst of the situation, but nothing is certain at the moment.

While the UK has one of the better funded state pensions systems of the world, the government are still expecting major funding issues for the state pension going forward.  There has, and continues to be, a great move towards putting the onus back on the pubic to arrange their own personal pensions for the future, with the intention of taking some pressure of the state system.  Why should we be funding our own pension arrangements as we have all paid our fair share of taxes?

The truth is that the pensions industry have made a number of simple errors over the last decade or so, with regards to the average life expectancy of the UK population. In an industry where even the smallest under calculation can have majors implications, it seems that that the UK population are living longer, which means extra funding requirements for the state pension (as well as personal and company arrangements).

The government have been offering a number of tax incentives of late to set up your own personal pension arrangement, which will run side by side with the state pension.  While some may consider this strange, the fact is that in relative terms the value of the state pension has been falling for some years with annual increases at best in line with inflation.  As the cost of living increases at a higher rate than the state pension, the power of the state pension is continuously eroded.

There are also concerns that the UK may suffer as the EU grows closer and closer, with talk of “bailing out” fellow EU members who are having major problems with their state pension. The Italian pension system for one is currently in disarray with massive under funding implications forecast for the years ahead - we are talking about billions of pounds, which fellow EU members may be expected to contribute to.

The fact is that by the time many of us reach pension age, the value of the state pension will have fallen so much in relative terms that we will need to have our own arrangements in place.  For those in a position to do so, it his highly advisable to seek professional advice as soon as possible.