- Helping members of occupational pension schemes to better understand their benefits.

21st May 2019
:: Scheme Member | My Personal Circumstances | Security and Risk | Pensioner members of a MP scheme

Security and Risk – Pensioner Members
This Factsheet briefly discusses some of the main issues relating to security and risk, and how these can have an effect upon your pension benefits.
It is written for people with a benefit in payment arising from an employer sponsored money purchase pension scheme (‘money purchase’ is sometimes called ‘defined contribution’).
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In most situations, your pension is being paid through a contract with an insurance company. The benefit itself will have been chosen by you before that pension started. You will not be able to change that contract in any circumstances.
If you are in receipt of a drawdown type pension, where some of your pension has not been fully secured with an insurance company, you may be able to change that part of your pension that has not yet been insured. These arrangements (usually referred to as ‘income drawdown’) are operated by insurance companies and a few company pension schemes.
This Factsheet deals with the more common situation of an insured pension.
If you are intending to get advice from a Financial Adviser these are some of the things you should be discussing with them.
Security of your employment (risk of tenure)
If you have continued to work for your employer but have begun taking some or all of your pension benefit, the security of your employment may still play a part in your overall retirement planning.
Job security may still have an important impact upon your retirement provision if you still need the extra earnings.
Money purchase schemes provide benefits based upon the amount of money that was in YOUR own pension ‘pot’ when benefits commenced being paid. If you continue to work during retirement, you may be able to take advantage of the valuable tax incentives that pension arrangements have to further supplement your retirement income.
An additional benefit could also arise if your current employer offers to make contributions to your pension plan. You should seek advice from your financial adviser to ensure that such an arrangement fits your circumstances and future requirements.
Increasing life expectancy (mortality risk)
We’re living longer – and that’s a fact. But it’s not all good news. The longer this trend continues, the more expensive pensions will become in terms of providing the actual pension income at retirement. The implications of living longer are something employers, schemes, members, government and society must all face up to.
If your benefit is fully insured, the insurance company paying your benefit will have to cope with the problem of increased life expectancy as they have promised to pay you your benefit. You do not have to worry about what appears in the papers.
Greater life expectancy will also mean an increase in State Pension Age, which has historically been 65 for males and 60 for females. From 6th April 2010 over a 10-year period, State Pension Age for women will gradually increase to age 65. Women born after 5th April 1955 now have a State Pension Age of 65.
Find out how long your Life Expectancy is.
Legislation, Regulation and Governments (political risk)
Current and future burdensome legislation and regulation will have an effect on your total pension provision even though you are a pensioner member. State Pensions will increase for many in the future but for others, particularly higher earners, they will reduce.
The use of Pension Credits to top up state benefits can make small pensions ineffective. The more this method is used by the Government to relieve poverty in old age the less attractive it will continue to be to make small pension contributions.
The creation of The Pensions Regulator provides some comfort for money purchase schemes with more control over schemes and the employer contribution.
Political change also includes the risk associated with a change in Government as political parties have different agendas and priorities. Pensions and security in retirement continue to be a political ‘hot potato’.
Means-testing to provide a minimum overall pension for everyone after State Pension Age affects a growing number of pensioners, but the proposals of the Pensions Bill of November 2006 seek to reduce this reliance on State top-ups using Pension Credits.
Inflation and interest rates (economic risk)
Inflation is an issue for you if you have not protected your benefits by selecting the ‘RPI increase’ option when you retired. Over a period of time, inflation will erode the purchasing power of your pension. Should this become a serious problem for you, you will have to rely upon other assets to protect your lifestyle. Ultimately, you might have to rely upon State support if the situation deteriorates too much.
If you have assets that might provide that protection, you should seek financial advice.
Bought out Pensions (default risk)
For any scheme members whose pension benefits have been secured with an insurance company, financial risk is much less of an issue (if at all), as a policy will have been bought by your pension arrangement to pay for your benefits. The insurance company carries all of the risks described above.
The benefits that the insurance company takes over are, in most situations, secure.
Personal circumstances, age, health, income, assets (personal risk)
Your personal circumstances play an important part in your retirement planning:
Health: If you are in good health, you will probably be more active during your retirement and therefore require more money to support your lifestyle. If you are in poor health, you may need to pay for carers. Your health situation is therefore very important.
Income and assets: The greater your income and assets, the less your reliance will be on means tested State benefits. The lower your income and assets, the more likely you will be to need additional State assistance.
Dependants: If you have financial dependants (e.g. spouse, civil partner, children) your spendable income will most likely be reduced compared with a single person without dependants on the same income.
These factors are important. As a pensioner member, you may be less likely or willing to be able to find suitable work to supplement your retirement income.
Your attitude to risk (financial risk)
Pensions are only part of the story. In dealing with your any of your financial arrangements, you should consider your attitude to security, risk and reward. Each of them should be classed as a separate item (e.g. pensions, investments). Apart from any State Pension or Social Security benefits, your pension may now be your only income.
If you seek financial advice, you should be asked what your attitude is to security, risk and reward. Pension and Financial Advisers will usually have standard forms to gather information about you, so that they may advise you according to your personal circumstances.
It is important therefore, that you make certain when discussing your attitude to risk, that you are specific about what this relates to. Your attitude to risk will probably differ when focusing upon your pension provision compared to your risk profile when investing in different assets (e.g. stocks and shares, property). Make sure that the attitude to risk used in any advice process, relates to your retirement provision and planning.
You may be asked to select your ‘risk profile’ from a list. An example would be a scale of 1 to 5, 1 to 10 etc. or choosing a sentence such as “My attitude to risk is conservative” or “My attitude to risk is balanced/medium”. When selecting a risk profile from a scale of 1–10 for example, make sure you know which is the low-risk end of the scale – obvious maybe – but important nevertheless.
Be sure to select the one that best fits you – not one you think will impress the adviser. If what you are presented with does not adequately reflect YOU – discuss this with the adviser – and make sure this is noted accordingly.
Your attitude to risk will probably have changed since you began to take your pension benefits as you seek to protect the benefits you have built up.
Summary and Key Points
When making enquiries about your pension benefit it is very important that you make it clear that you are a pensioner member.
  • Risk comes in many forms – you should consider what risks YOU face in terms of your retirement provision.
  • Do you keep abreast of changes – legislation and regulation may affect your pension benefits?
  • Are you affected by the increase in State Pension Age?
  • Have you considered how your personal circumstances may affect your pension benefits?
  • Keep informed. Legislation may change. Your circumstances may alter.
This is not an authoritative document. Seek professional advice from an appropriately experienced and qualified adviser.
Security and Risk Pen v1.3 MP
Last reviewed 22/01/2009
527 v1.3

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Security and Risk - Pensioner Members MP
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