MoneyTalk February 2005

by Arch Financial Planning Limited

ONCE UPON A TIME ...

Once upon a time there were three little pigs and the time came for them to leave home and seek their fortunes. Before they left, their mother told them ‘Whatever work you find to do, remember that one day you will be old and need a good pension.’ The first little pig spent all of his income on living well and when the time came that he could no longer work the big bad wolf, who dearly loved to eat fat little piggies, came along and saw him in his financial house of straw. He said ‘Let me in, Let me in, little pig or I'll huff and I'll puff and I'll blow your house in!’ ‘Not by the hair of my chinny chin chin’, said the little pig. But of course the wolf did blow the house in and ate the first little pig.

The second little pig heeded his mother’s advice and took out a personal pension straight away. However, he thought he would never get old and only put a small amount of money into this plan every month. When the time came that he could no longer work the big bad wolf came along and saw the first little pig in his financial house of sticks. He said all the usual stuff (!) and ended up eating the second little pig.

The third little pig was more intelligent than the other two and spent his life working for a very well know company and joined their final salary pension scheme on the very first day he was eligible. When he neared the time that he would no longer be able to work he knew that the big bad wolf would soon be coming along to bang on his door. But he was not worried because he had built a house of bricks, or rather, his employer had promised him that he would build such a house for him after all his hard work and long service. In the meantime this little pig was actually living in a house of straw that he had built himself. He was getting a bit concerned about this, however, because he knew the wolf would be coming soon and he had heard from other pigs of the demise of employers such as BCCI, WorldCom, Enron, Equitable Life and Arthur Anderson. ‘Was any employer totally safe today?’ he asked himself. To which he answered ‘Probably not’. That no doubt applied to his employer too. And if no employer is entirely secure then no private sector pension fund can be either. One day, somewhat sooner than he had anticipated, he heard the wolf coming and he realised that he had been a little foolish to leave his whole future security in the hands of someone else.

Whilst this is only a fairy story, it reflects a growing concern among some of our clients about the security of the benefits that they have in their employer provided ‘defined benefit’ pension schemes, which are commonly referred to as ‘final salary’ schemes. Although such pension schemes are used in both the public and the private sector, it is the private sector schemes which are beginning to cause concern.

In response to this growing concern we have produced a Fact Sheet: Final Salary Pension Schemes which you can print-off from our website at www.arch-fp.co.uk/final_salary_pension_schemes.htm or simply read about this further online.

We deal with the current position in respect of such schemes and what has gone wrong with what was regarded as a safe method of pension provision. We look at the problem of underfunding and the new Pension Protection Fund which opens its doors on 6 April 2005 and how to keep an eye on the health of your employer’s pension scheme.

For those thinking of leaving a final salary scheme and taking a transfer value, we explore the important issues of market risk and longevity risk. If you are a member of a private sector final salary pension scheme, then you need to understand that there is a risk that your pension may not be what you are currently being promised. If this knowledge means that you are going to take your future financial security into your own hands and build up other assets outside of your employer’s provision, then perhaps the story will have a happy ending after all.

If you would like to receive advice on any pensions issue and you have an Arch adviser then please contact him or her, otherwise email direct@arch-fp.co.uk or telephone 01483 204600.

Unsubscribe: Click here if you no longer wish to receive issues of MoneyTalk from Arch Financial Planning Limited

Subscribe: If you have a colleague who would like to receive MoneyTalk please ask them to email us at subscribe@arch-fp.co.uk

Feedback: We hope you continue to benefit from this Arch service. Do please let us have your comments or feedback at anytime

Arch Financial Planning Limited

Head Office & Registered Office: Caswall House, 6 Wharf Street, Godalming, Surrey GU7 1NN
Tel: 01483 527278, Fax: 01483 527279

Administration Office: Arch House, Collins Court, 39 High Street, Cranleigh, Surrey GU6 8AS
Tel: 01483 204600, Fax: 01483 204611

AUTHORISED AND REGULATED BY THE FINANCIAL SERVICES AUTHORITY

DISCLAIMER
This message is confidential and for use by the addressee only. If you are not the intended recipient, you must not use, disclose, distribute, copy, print or rely on this message. Please notify the sender by return email and then delete the message from your computer. Arch Financial Planning Limited disclaims all liability of whatever kind (including for negligence) to anyone other than the intended recipient(s). Arch Financial Planning Limited accepts no responsibility for changes made to this message after it was sent nor for any loss or damage from receipt or use. We have endeavoured to ensure that this email is virus free but we advise that in keeping with good computing practice, the recipient should make his or her own checks.