Hot Topic: Self provision

Most people have long been aware that they need to make financial provision for their retirement. Many have assumed that their lifetime’s work would be rewarded with a pension from an appreciative employer.

Unfortunately, a combination of changing demographics, regulation, stock market declines and corporate belt-tightening has removed these cosy assumptions. Few employees in the private sector can now expect to spend their career with a single employer; and employers, for their part, have united in either winding-down final salary benefit schemes altogether or restricting membership to existing employees. Meanwhile, governments have been unable to afford to provide anything but subsistence-level state pensions.

For the reasons above, self-provision has become the new mantra. Occupational or personal pensions are fast replacing defined benefit schemes, and the investment risk is being passed to the scheme member. The value of the pension generated by these schemes depends on just two factors: the sums contributed and the investment returns generated.