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g“ However it is not all doom and


loom and market conditions can and do change very quickly


By ELAINE PEOPLES Wealth Management consultant, Alexander Forbes Offshore





Difficult timesfor savers planning for their retirement


The landscape has shifted dramatically in the last few years for those of us who are looking ahead to our retirement, trying to ensure that we will have sufficient income to maintain a reasonable standard of living in our later years.


The days of the final salary pension scheme, (where your final pension was directly linked to your earnings) being the norm offered to most Jersey employees has long since disappeared.


Nowadays the majority of firms offer what are called defined contribution schemes where the end pension depends entirely on the value of the investments which make up the final pot.


Furthermore the rate of income paid is usually dependant on long term Government bond (or Gilt) rates at retirement and mortality rates. This means that your pension is exposed directly to market forces and you need to keep a very close eye on it to ensure your contributions will generate the level of pension you feel will meet your needs.


The last six months have been testing for defined contribution pension savers as a combination of falling investment values; reduced bond yields and ever increasing


Page 92 Money & Investment


longevity have combined to reduce the value of their retirement fund.


To illustrate the impact of this our calculations show that while the average 30 year old in 2000 could have expected contributions of around 12% of salary to a defined contribution scheme to be enough to provide a two-thirds income (67%) in retirement at age 65, that same saver contributing at the same rate would now be expecting an income just 43% of final salary.


The story is much the same for other age groups who have been saving for retirement as our table below shows.


However it is not all doom and gloom and market conditions can and do change very quickly. Furthermore we have been through a particularly difficult period in 2011 which has had a major impact on the value of client’s investments as can be seen from the above. On as positive note the Jersey tax


Age In September 2000


system offers considerable encouragement to save for retirement as tax relief in any one year is the equivalent of your annual employed earnings capped to a maximum of £50,000.


Furthermore recent changes to Jersey’s pension’s legislation mean that there are a number of individual qualifying pension options open to those local clients who wish to supplement their company pension arrangements, which are very flexible in nature both in terms of how contributions can be made and in the way that benefits can be taken from the plan on retirement.


I cannot however over emphasise the importance of people regularly reviewing their pension savings. By making relatively small changes to their contributions on a regular basis they can stay on track for a comfortable retirement, but any delay means that their original retirement expectations will quickly become out of reach.


Typical Pension Shortfall On 2/3rds Final Salary Expectation.


Age In September(2011) Contributions Assumed From Aged 20 At 12% Of Salary P.A. (%)


50.5 (61.5) 40.5 (51.5) 30.5 (41.5) 20.5 (31.5)


£13,107 (44%) £14,704 (43%) £11,502 (36%) £9,252 (32%)


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