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THE IMPROVEMENTS


THAT COULD BE MADE TO LOCAL PENSIONS PROVISION By Chris Hall, Pensions Director, Vantage


The Jersey Annual Social Survey 2015 results indicated that just over half of adults are worried about their standard of living in retirement, and 41% do not think that they will have a good retirement.


The States of Jersey have recently commenced their review of the future for Social Security and income in retirement, while Guernsey are a couple of years ahead with a proposed secondary pension scheme due to begin a phased launch from 2020 with final contribution levels reached by 2030. The proposed Guernsey secondary pension would be an auto-enrolment scheme, similar to the UK concept, but with some clear differences in scope and collection methods.


Why are governments reviewing retirement provision? The main factors affecting the future levels of retirement income are contribution levels and the expected longevity of those reaching retirement:


• Average life expectancy has increased quite considerably due to factors such as medical advances and improved nutrition. This has resulted in an increase in the cost of providing an income for life in retirement. Retirement periods of 20 to 30 years are now a real possibility!


• One of the effects of the increase in the cost of purchasing an income for life, or annuity, is the reduction in the level of income that the pension fund buys, i.e. poorer pensioners.


• This increase in cost has also made annuities less attractive resulting in more people choosing the drawdown or Annuity Equivalent option. With this option there is no guarantee of the levels of income that will be available, or that the pension will last throughout retirement, increasing the risks of poverty and Social Security support.


Page 38 An Ageing Island


• Pension splitting is also available where part of a fund can be used to purchase an annuity and the remainder used for Annuity Equivalent. This illustrates the importance of financial advice in this area.


• For those lucky enough to be members of a Defined Benefit Scheme, the increased cost of providing an income retirement falls on to the employer, hence the mass closure of these schemes to new members, future accrual or move from final to average salary calculations.


• It is clear that the number of pensioners with Defined Benefit schemes will steadily decrease over the next 20-30 years, leaving a “Black Hole” in retirement provision, unless drastic measures are taken!


Jersey’s review of retirement provision will look at the future of the State Pension. With an ever increasing retired population, resulting in an increased state burden it is inevitable that either the state retirement age will need to further increase, the real value of the State Pension will need to be reduced, Social Security funding contributions will need to increase or there will need to be a combination of changes to provide the necessary state funding for the State Pension. The review will also consider secondary pension provision.


For most, the State Pension will not provide the level of income required or desired in retirement and therefore secondary provision is required.


Although there are other non-pension


related ways to invest and provide for retirement this article will concentrate on pension related matters.


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