UK Pensions Debate - Essay Example

UK Pensions Debate: UK Pensions Issues Introduction Pension issues in the UK involve the need to save for the future by employees. Majority of employers enroll eligible employees who automatically subscribe for a terminal pension scheme. The employers contribute for their employees’ pension schemes fee to various institutions to make it affordable for the employees and find comfort within the pension schemes (Agarwal, 2015, p. 6). Additionally, UK government tries to harness current inactivity by encouraging and allowing the majority of people to join and begin saving for their future as they work in various institutions and companies in the UK.

The government encourages taking up of pension schemes as an option of employees benefit. Besides, the government plays very vital role in encouraging employees to develop retirement plans by engaging in pension schemes and reducing reliance on the government after retirement. The push by the government is important because current situations on life expectancy are high (Chanel, Makhloufi & Abu-Zaineh, 2015, p. 4). People live longer in retirement hence the development of appropriate pension schemes that accumulates great funds.

Pension schemes financing assists in the preparation of future life (Pension Regulator, 2013, p. 1). On the other hand, defined occupational pension scheme pays out employees of various institutions and organizations an income depending on how much money earned after an individual retires. Through the defined occupational pension schemes, the amount an individual receives after retirement entailed guarantee and paid directly to an individual (Nomura, 2015, p. 5). Controversies, Options and Potential Pension Issues in the UK The UK pension issue entails controversies, options and potential requirements in companies and various organizations.

Controversies for pension scheme in the UK include involuntary enrolment with obligatory employer donations and participation in the national employment savings trust (NEST). All the employees must subscribe to pension schemes and employers must participate in ensuring that their employees comply with the pension schemes rules and regulations (Gardiner, Robinson, & Fakhfakh, 2015, p. 5). Moreover, all employees must members of national employment savings trust to allow for developments of pension schemes that assists the employees.

The two mandatory requirements raise controversies in the implementation of pension schemes in the UK since some employees and employers resist participation in the pension schemes. Moreover, some employers do not want to contribute for their employees causing default payments within the pension schemes (Maynard, 2013, p. 12). Besides, some employees are unwilling to join the pension schemes since their commitment in the schemes becomes difficult. These requirements raise controversies during the implementation of pension schemes in the UK.

The option in the implementation of pension schemes in the UK includes membership participation in the National Employment Savings Trust especially if employers do not provide the option of pension schemes. Therefore, the National Employment Savings Act, is used an option when employers do not provide the option of pension schemes for their employees (Palea, 2015, p.1). The option gives employees an opportunity to save for their future without necessarily engaging the employers with their various pension schemes within companies or organizations.

The potential requirements for the establishment of working pension schemes include automatic enrolment of employees of the age of 22 and governments retirement age (Hansen et al., 2015, p. 9). The employees must contribute to a suitable pension scheme. The pension scheme must have proper rules and regulations within the set earnings limit to allow for proper engagements in the development of pension schemes among the age of 22 and the national retirement age. The pension schemes allow for the development of defined occupational pension schemes.

The schemes pay out employees upon retirement depending on the amount of money saved in the schemes (Gibbs, & Tucker, 2015, p. 2). Defined occupational pension schemes give employees an opportunity to contribute and save for their future with a guaranteed benefit after retirement. Therefore, UK pension institutions require employees to use a defined occupational pension scheme to guarantee their benefits in future through savings in the defined occupational pension’s schemes. The payments are made directly to them after retirement according to the amount of money saved in the pension schemes (Loughran, 2011, p. 6). Therefore, despite the fact that they exists controversies, options and potential developments in UK pension schemes, the development of defined occupational pension schemes in UK allows employees to save for their future.

Additionally, employees enjoy benefits after retirement age of the government(Pension schemes,2013, p. 15). Calculating Criteria from Final to Average Salary Calculations Defined occupational pension schemes in the UK have various methods of calculations from the final salary to average salaries before providing individual pensions (Pension trustee support unit, 2014p.8). The current calculated criteria for the pension schemes rates, as set by defined occupational pension scheme, is as shown in the diagram Transitional period Duration Employer least contribution Accumulated minimum contribution 1 The duration affects employers until September 2017 1% 2% 2 The duration affects employers from 1st October to 30 September 2018 2% 5% 3 The duration affects employers from 1st October to 30 September 2018 3% 8% The employers’ contributions in percentage represent the average salary of employees’ contributions to the pension scheme.

The accumulated minimum contributions represent the final salary as calculated by defined occupational pension scheme within the set period of working. According to the table above, the third transitional period has a huge average salary and final salaries for pension benefits of employees (Yang, & Tapadar, 2015, p.2). However, many organizations in the UK are against defined occupational pension schemes.The rates that employers contribute to the schemes are too low as compared to their salaries as shown in the table above for calculated criteria (Vlachantoni et al., 2015, p. 9).

Causes and Impacts of Pension Issues with the Provision of Financial Data The cause of pension schemes is to save for the future after retirement. However, the impacts of pension schemes on financial data gives different results as the final salary.The financial data table below shows changes in percentages of total investments and the amount of money in asset investments Asset Class $0000 % of total investments $0000 % of total investments UK fixed interest rates of pensioners 246, 940 8.3 238, 410 6.

7 Quoted corporate 174, 955 5.2 91,272 2.7 Unquoted corporate 322,384 10.2 362,352 9.0 AVCs 5,077 0.2 4,140 0.2 Cash and other investments balances 9,851 0.1 9.682 0.1 Total 759,207 24 705,856 18.7 (Source: (Bank of England, 2014, p. 14) The financial data above gives different amounts on the final salary given to pensioners on different assets invested at the scheme. Depending on the financial data, pension issues on reward depend on the total amount of investments contributed by employees to the pension schemes (Stittle, & Wearing, 2008, p. 5). Lord Tuner’s Recommendations of Pension Schemes Lord suggests that the most recommended pension schemes for states such as the UK include changing final salary basis to pay out basis.

The changes need to engage the average pay of career based workers (BBC News editors, 2015, p.1). Lord argues that this move allows developments in pension schemes and the switch takes longer for various schemes. The most influenced schemes that give significant results include armed forces and police schemes. Furthermore, the changes allows growth in the cost of public sector pension developments as shown in the financial graph data below (Source: (BBC, 2011, p. 1) Lord suggest on the development of the average plan in raising the age of people to draw a pension as the state.

Plans to raise state pensions to age 66 for both women and men by April 2020 in the UK will lead to developments in pension schemes (BBC News, 2015, p. 1). Additionally, Lord maintains that uniformed services such as firefighters and armed forces need to raise pension age up to 60 to add value to the benefits accrued with pension schemes to employees. Consequently, the Bank of England Pension Fund for different organizations in England includes calculations as shown in the diagram below. These are calculated funds for the year ended 28 February 2014 of different contributors for a pension scheme (Pension trustee support unit, 2014, p.). (Source: (Bank of England, 2014, p. 14) Conclusion Pension schemes entail as important saving investments for employees.

Employers need to contribute significantly for their employees’ pension scheme contributions to allow for savings and great benefits after retirement. Different banks and pension schemes focus on employees’ investments and assets in calculating benefits and rates of profits for the schemes. Bibliography Agarwal, S. (2015). Exploring the Benefits of Pound-Cost Averaging. Available at SSRN 2615093. BBC News editors. (2011).Public sector pensions report explained. BBC News. Retrieved on June 28, 2015, from http://www.bbc.com/news/business-11466273 Chanel, O.

, Makhloufi, K., & Abu-Zaineh, M. (2015). Testing the circular payment card elicitation format: Evidence from a contingent valuation on health and pension insurance schemes in Tunisia, pp. 1-28. Gardiner, J., Robinson, A. M., & Fakhfakh, F. (2015). Exploring the private pension gender gap and occupation in later working life. Work, Employment & Society, 0950017015575868. Gibbs, T., & Tucker, J. (2015). 2014. Annual Survey of Hours and Earnings: Summary of Pensions Results. Hansen, J. V., Allé, P. H., Jensen, S. E. H.

, & Stephensen, P. P. (2015). Occupational Pensions, Aggregate Saving and Fiscal Sustainability in Denmark, pp. 1-32 Loughran, M. (2011). Financial Accounting for Dummies. Hoboken, NJ: Wiley Publishing, Inc. Maynard, J. (2013). Financial accounting, reporting, and analysis. Oxford: Oxford University Press Nomura, A. (2015). Defined Contribution (DC) Pension System Ready for Reform: Growing Need to Improve Investment of DC Assets. Nomura Journal of Capital Markets, 6(3). Palea, V. (2015). The politics economy of fair value reporting and the governance of the standards-setting process: Critical issues and pitfalls from a European perspective.

Critical Perspectives on Accounting, 29, 1-15. Pension Regulator. (2013). Pension schemes under the new employer duties. Workplace pension’s reform detailed guidance. Retrieved on June 28, 2015, from http://www.thepensionsregulator.gov.uk/docs/pensions-reform-pension-schemes-v4.pdf Pension trustee supports unit. (2014). Bank of England. Pension fund: report and financial statements 2014. Park communication Limited, London. Stittle, J., & Wearing, B. (2008). Financial Accounting. Los Angeles: Sage Publications.

Vlachantoni, A., Feng, Z., Evandrou, M., & Falkingham, J. (2014). Ethnicity and occupational pension membership in the UK. Social Policy & Administration. Yang, W., & Tapadar, P. (2015). Role of the Pension Protection Fund in the financial risk management of UK defined benefits pension sector: a multi-period economic capital study. Annals of Actuarial Science, 9(01), 134-166. Bank of England. (2014). Pension Fund Report and Financial Statements 2014. Pension Fund. Web. Accessible from http://www.

bankofengland.co.uk/about/Documents/humanresources/pensionreport.pdf British Broadcasting Station (BBC). (March 1, 2011). Public sector pensions report explained. Business. Web. June 29, 2015. Retrieved from http://www.bbc.com/news/business-11466273