The ‘UK Pensions Crisis' has recently appeared in some well known newspaper, and similar words are regularly appearing in the media. The news about the ‘UK Pensions Crisis' explain to audiences that every day seems to bring fresh warnings that Britons will not have enough money to live on when they retire which recently becomes one of serious problem which bring to citizen's attention. A number of aspects of the business environment that the audiences are looking for from the news as follows:
- The issue
- Implications of the issue for organisations, their employees, and UK society generally
- Views from different aspects of the business environment - Political, Legal, Social, Economic and Technological
In turn I will describe each aspects of the business environment and discuss the potential impact of the issue on employers, employees, and society as a whole.
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Recently many media as TV and newspaper are reporting the UK pension's crisis. Basically the problem of the UK pension is that there is not enough money salted away in pension funds to guarantee a comfortable retirement for today's working population. Last year the government has been forced to admit that official estimates of the level of pension contributions had been inflated by a statistical error which means many employees putting money aside for their old age may well find that their retirement income falls far short of what they had hoped.
The underlying reason why there is not enough money is that medical advances over the last ten years have greatly prolonged our life span, forcing the pensions industry to support a greater number of pensioners for longer periods.
Government figures show that average life expectancy in the UK rose by five years for men and four years for women between 1980 and 2000. (the times online.co.uk) But the problem has been exacerbated in recent years by dwindling stock market returns.
Pension funds depend on steady stock market returns to pay policyholders. And when share prices fall - as they have been doing for the last two years - it becomes harder for funds to meet their obligations. Lower returns have forced most of the big company-run pension funds to suspend generous schemes which guarantee employees a fixed proportion of their final salaries on retirement. Nearly one-quarter of firms have now set up defined contribution or money purchase schemes, which do not guarantee the final pension sum and are therefore less risky for companies. The double whammy of an ageing population and tumbling share prices has hit pension funds in most other European countries as well. (bbc.co.uk)
There is still a basic state pension, but at a maximum of £79.60 per week for a single person or £127.25 for a couple, it is unlikely to fund a comfortable retirement.
From the low level of the basic state pension we can see that partly reflects a concerted move by the UK governments, worried over Britain's rapidly ageing population, to encourage more people to save for their own retirement. However, some people believe that this plan may leave some consumers worse off at retirement than they would have been if they had stuck with their original scheme.
One of the reasons which cause UK pension's crisis is growing age. As the UK population are becoming older and older, the retirement age should be changed. Otherwise it makes pension's problem more serious.
The population will gradually become older with the average (mean) age expected to rise from 39.4 years in 2003 to 43.6 years in 2031. Longer-term projections suggest the average age will reach 45 years around 2050, and continue to rise slightly thereafter. -- (2004) UK population will pass 60 million in 2005 says new data. Available from: www.publictechnology.nethttp://www.publictechnology.net
The UK government are trying hard to tackle the problem. As in December 2002 the government announced in its pension green paper plans to offer incentives to workers who choose to work on beyond the age of 65.
The working age population will also become much older. In 2003, there were 2.3 million (13 per cent) more working age adults aged below 40 than above 40. However, by 2010, there will be just 0.5 million (3 per cent) more and, boosted by the change in women's state pension age, by 2020 there will be 1.4 million (7 per cent) more working age people above 40 than below 40. (www.publictechnology.net, 2004)
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In addition, from 2006 the retirement age for new public sector workers is to be increased from 60 to 65.
Some analysts recommend the alternative approach of rising the minimum retirement age from 65 to 70 or beyond.
The report from the Government's Pension Commission says three unpalatable options are open to avoid millions of people living out a retirement of struggle and deprivation.
The options are:
- A rise in the average retirement age for men and women from 63 to almost 70.
- A £57bn-a-year increase in taxes and national insurance equivalent to an increase of almost 20p on the basic rate of taxation.
- At least a doubling of the level of savings being put aside by workers for their retirement. For typical workers on middle income this would mean finding almost £5,000 a year or more than £400 a month. (www.thisismoney.co.uk)
The report warns that the worst problems are faced by private sector workers on close to average incomes. And also the report says people retiring in the next 10 years have little to worry about and that the crisis will only unfold in full in about 15-25 years' time. The insurance industry broadly welcomed the report, but said the Government now needed to act decisively to close the yawning savings gap.
In addition, some people believe that Immigrants could hold key to UK pension's crisis. A current research shows that up to 10 million immigrants could be needed in the UK by 2025 to ensure pensioners can continue to receive £80 a week from the basic state pension, as the Immigrants are becoming a part of the UK social society.
Researchers at CassBusinessSchool in London said the likely course of the pension's crisis pointed to the need to work longer, save more and allow in more immigrants who will pay sufficient tax to keep the system afloat.
The most gloomy scenario - that productivity and real wages will not increase between now and 2025, and so generate more money for paying pensions - says 10 million migrants would be needed if we did not work longer, pay higher national insurance contributions and kept living longer. (www.personneltoday.com)
Over all, we can see that what cause the issue, what the UK government have done to tackle the problem and what may help the UK government go though the hard time.
Implications of the issue for organisations, their employees, and UK society generally
A pension is a regular payment that is intended to allow the saver to subsist without working at a later point in his or her life.
There are four main types of pensions in the UK at the moment.
- The Personal Pension
- The Company / Occupational Pension
- The Stakeholder Pension
- The State Pension
Occupational pension schemes are set up by employers to provide pensions and life assurance benefits for employees, for example, a tax-free lump sum payable if they die before retirement to their widow/widower or other dependant(s).
Occupational pension schemes are either:
- Contributory, where you give part of your earnings (typically 5% of your gross salary) in addition to your employer's contribution. OR
- Non Contributory, where your employer makes all the payments.
Occupational pension is most inflecting to the employers, in either case which shows above the employer has to pay for a substantial part of the administrative costs of the pension scheme, by law. The employees also get tax benefits from the Inland Revenue.
A stakeholder pension is another pension which can inflect the employers. Stakeholder pensions are available from personal pension providers, for example, insurance companies, banks and building societies. Other organisations, for example, trade unions and the Post Office may also offer stakeholder pension schemes to their members. If you are employed, you may be able to get a stakeholder pension through your employer. You can also choose to join a different stakeholder pension scheme to the one offered by your employer.
However for employees the pension means that the amount of money they need to put aside in order to ensure a given level of retirement income is rising steadily.
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Report shows that a 30-year-old man aiming to retire at 65 on an annual income of £20,000 a year in today's terms would currently need to save about £260 a month. This rises to about £450 for men aged 40. For women, deemed more likely to take career breaks, the minimum saving requirement is likely to be higher still.
Because of that thousands workers and pensioner paraded in London, to appeal the UK government that to pay attention about the UK pension's crisis. The labour union league appealed to build a new retirement pension mechanism.
The State Pension and the Personal Pension are open to UK society generally, as a personal pension is a way of saving money to ensure a comfortable retirement. In the UK it has major tax benefits which make it the best type of retirement plan for the vast majority of people, who, unless they're rich, really do need to save for old age.
As a whole, organisations, their employees, and UK society generally are all impacted by the issue, as they are indivisibility.
(2004) UK population will pass 60 million in 2005 says new data [online]. Available from: http://www.publictechnology.net [Accessed 15 October 2004].
(2004) The Economic and Commercial Counsellor's Office of the embassy of the People's Republic of China in the United Kingdom of Great Britain and Northern Ireland [online]. Available from: http://gb.mofcom.gov.cn [Accessed 15 October 2004].
(2004) /Pensions crisis worse than feared Availablefrom:http://www.thisismoney.com/20041012/nm83420.html [Accessed 12 October 2004].
(2004) Immigrants could hold key to UK pension's crisis Available from:http://www.personneltoday.com/Articles/[Accessed 01 November 2004].
(2003) UK PENSION CRISISAvailablefrom: http://www.csis.org/press/ma_2003_0602.htm [Accessed 30May 2003].
(2004) How bad is the UK's pension crisisAvailablefrom: http://news.bbc.co.uk/1/hi/business/2082800.stm [Accessed 6 April, 2004].