Pension development forecasts for 2009

by Dr. Ros Altmann

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2009 will be another very difficult year for pensions.

Pension contributions will fall: Confidence in pensions was already low, but will fall even further as the public see those who have saved diligently in the past suffering huge losses on their pension investments. As the economy worsens, those who lose their jobs or find it harder to make ends meet are likely to suspend pension contributions.

Bank accounts are safer than locking money into a pension: Government has worsened the relative protections for pensions. By providing 100% unlimited guarantees for bank deposits - even in an Icelandic bank, it now seems much safer to put money in the bank than into a pension, where the maximum protection is only 90% and often up to a cap.

More final salary schemes will close as funding worries intensify: Final salary schemes will continue to close as employers struggle with worse deficits after the market mayhem of 2008 and cannot increase contributions as the recession bites.

Worries about deflation will hit scheme funding: Falling retail prices in 2009 are likely and a sustained deflationary period poses huge risks for final salary schemes as pension benefits cannot be cut. Limited price inflation gilts would help trustees match their liabilities but are not currently available. This would be a dreadful situation for final salary schemes.

PPF funding concerns: There will be many more company failures so the Pension Protection Fund's funding will deteriorate sharply. Will the Government need to provide an underpin?

Dreadful drawdown performance: we may see some drawdown customers at risk of running out of money after the market falls deplete their pension assets. Will they consider challenging those who advised them against lifetime annuitisation in the last few years?


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