I have often found myself a bit of a pariah at dinner parties. The problem begins when there is the customary question ‘So what do you do then?’

I lower my eyes and try not to blush but being (like George Washington), unable to tell a lie I reply quietly ‘Actually, I’m a pension lawyer’. ‘Oh really’ says the inquisitor as a glazed expression overcomes them and they shuffle off to speak to someone they consider far more interesting.

Which, to be honest is really a bit of a shame – irrespective of the fact that I am in fact a really fun person to talk to, pensions are extremely important. Why? Well, the truth is that (barring an extreme misfortune) we will all get old. Our working life will come to an end and our income will be affected as a result.  Unless we have planned carefully during those active years, our old age will be one of misery and abject poverty, especially if you are relying on the State Pension for your retirement.

But it is all just too complicated I hear you say…and you are of course correct – it is – and it is getting worse. To fully understand what is out there, speak to a Pensions Lawyer; but in the meantime, here are just a few options:

• Defined Benefit Occupational pension schemes (the gold standard, but getting pretty rare nowadays due to cost). These pensions are a percentage of final pay multiplied by the number of years worked. Sometimes called ‘Final Salary’ schemes.
  

• Defined Contribution Occupational pension schemes (the most common type nowadays). Pension is Employer and Employee contributions paid in plus any investment return. Sometimes called ‘Money Purchase’ schemes.

• Stakeholder schemes – a money purchase arrangement designated by an employer with 5+ employees. It simply has to be available if the employer offers nothing else. Will become obsolete in 2012 and was a failure.

• Personal Pension Schemes – usually a contract with insurance company providing benefits on a money purchase basis. Employers under no duty to contribute but some do. Sometimes employers provide a Group Personal Pension. Don’t be fooled, this is simply a personal pension but grouped with others to get the benefit of economies of scale. Employers will often contribute to GPPs.

• NEST – the new National Employment Savings Trust – due to be introduced in a phased way from 2012. All employees will be auto enrolled in this unless their employer offers an alternative qualifying arrangement. Employees have to pay at least 4% of earnings in and employers, 3%. The Government will pay in 1%. This will allow you to retire in poverty having been led to believe that it is a good scheme. It isn’t.

But despite being fiendishly complex, that is no excuse to sit back to do nothing. As an employer, you will need to get yourself up to speed with the new regime and ensure you are either providing a good alternative or that you understand what NEST means to you as an Employer. As an employee, you need to join whatever scheme might be available to you to ensure you are not left with just a State benefit in retirement. The UK has one of the lowest state pension provisions in Europe as a proportion of average weekly income. If you are an employee, get yourself a good Independent Financial Adviser. If you’re an employer, get yourself some advice from a Pension Consultant or a Pension Lawyer. I know a pretty good one… great at dinner parties.

Article by Jennie Kreser, Pensions Partner at Silverman Sherliker LLP

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