The Revolution of the Pension Market

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February 3, 2020

The Pension industry is evolving and for the better. Greater security and legislation are at the forefront of changes to come, most young individuals in work have no idea how much they need to save for retirement. Today the average life expectancy of a 25-year-old is to surpass 91 years old.

Are you looking at organising your finances we can help you learn how to here>

First up in the changes to come is “The Pension Scheme Bill” now published, this bill seeks to introduce tighter legislation and essentially offering more control to better funded and well-governed pension schemes, that offer more wholesome benefits to its members.

It will also control which assets your pension can be invested in, offering lower risk for the individual and stamp out banks taking greater risks with your money.

The main points of the bill include:

1. To provide individuals with a ‘pensions dashboard’ in real-time.

2. Statutory transfer restrictions unless prescribed conditions are met.
3. A new obligation for trustees of occupational DB schemes, to define a strategy for ensuring that pensions and other assets under the scheme can be provided over a long term.

4. The introduction of new criminal laws for failure to comply with a contribution notice, avoiding any employer debt and conduct risking assured scheme benefits

5. An environment for “collective money purchases” also known as DC or CDC

Read more about the Pension Scheme Bill in detail.

What are the main evolutionary aspects that are transforming the market?

The shift from “Defined benefit schemes” to  “Defined contribution schemes”
What does this all mean? Firstly...

•⁣⁣A defined benefit scheme

This is a type of pension plan whereby an employer pays directly into a specified pension payment or lump sum, or sometimes even a combination. The employee has limited say in where this money is invested and can only receive this at the year of retirement. There are solutions out there to have more control of this capital - contact us to find out more

In recent years employees have moved around to climb the career ladder (company and location) and the DB scheme has lost its popularity due to its rigid nature. Read more in detail here.

•⁣⁣A defined-contribution plan

This is a new type of pension planning, which allows the employer to contribute any portion of their earnings to a scheme and their employer will match this.

The contributions from both parties are invested at the discretion of the employee into mutual funds like stocks and annuities. This type of plan is very flexible and can move with the employee from job to job.

The market is, without doubt, heading towards A “DC” type of pension plan mainly due to its low risk and flexibility for both parties involved.

Do you need further help or advice with your pension?

A complete new pension scheme from Dubai

The DIFC has already started a brand new pension scheme, “The Employee Workplace Savings (DEWS)“. will replace “The end of service gratuity”.

The scheme will be similar to the defined contribution in the United Kingdom. One of the differences is that participants can add voluntary savings, including cash or cash equivalent options for those wanting lower risk.

The importance of having a diversified portfolio.

Globally we have seen first hand the risk involved in having your pension tied up in your company, whether it be a DB scheme or even a DC scheme. This recent article explains what happened to one individual relying solely on their company pensions.

Most recently in the UK, the “Pensions Protection Fund” (PPF) will payout on 90% of your plan. To avoid disasters mentioned in the article above. We tell all our clients about the importance of arranging your finances earlier to avoid such situations.

Does your company really have your best financial interests in focus?

Have they diversified your pension investment?

How volatile is your retirement currency?

If you’re asking yourself questions like these, we can make sure that you are in control of all your financial structures, to help you retire on multiple income streams that are safe and secure.

Our clients always assume that they can rely on Dubai’s “End of service” gratuity but this is an underfunded and open-ended regime that exposes most employees to the risk that they might never get paid in full. Globally most companies and governments are moving to funded benefits, to hand the responsibility down to the staff.

A pension scheme is a great financial product to have but it should be part of a diversified portfolio of assets. We can help arrange your own personal portfolio so that you’re in total control and can apply the correct level of risk that you’re comfortable with.