Can you afford not to have a pension?

The simple answer for most people is: “No, you can’t”. The days when people could retire and live comfortably off a state-funded pension are gone – and with changing demographics, longer life spans and even more pressure on government revenues, it’s a safe bet that they won’t be coming back.
All this essentially means is that there is less money to pay more people for a longer period; this clearly cannot work. Reform is needed and it’s already underway in many places, including Guernsey.

The UK government phased in ‘automatic enrolment’ – making it a legal requirement for all UK employers to provide their staff with an employer-sponsored workplace pension – from 2012. The employer must automatically enrol every eligible worker into the scheme and make a minimum contribution to the scheme. Scheme members also receive tax relief on their contributions, making pensions an attractive option for saving for retirement.

This has been a huge success and the model is being adopted in many other places, Guernsey being one of them. The States of Guernsey is currently in the process of introducing a mandatory regime for employer-sponsored pensions in Guernsey, referred to as ‘Secondary Pensions’.

This will be the most significant development in the local pensions’ landscape in recent times and will help to ensure that significant numbers of people who would otherwise not have any additional retirement savings (besides what they will receive from the state-funded pension) will have something meaningful saved to support their retirement needs.

In Guernsey, some individuals deal with this issue themselves by setting up their own personal pension, a Retirement Annuity Trust Scheme (RATS), which allows them to save for their retirement and also benefit from tax relief on the contributions they make.

Some employers also provide their staff with an employer-sponsored pension, which means they typically pay the running costs of the pension scheme and make contributions on behalf of their employees (in some cases with the employees also required to contribute).

In years gone by it would have been considered a premium benefit to have a pension plan through your employer, however it is now much more common and even considered as a fundamental and expected part of an employee benefits’ package.

Speaking from personal experience, had I not been fortunate enough to have worked for a company that provided me with a pension very early in my career, I am certain that I wouldn’t have made any savings myself. The introduction of Secondary Pensions will therefore be a major benefit to Guernsey and should ensure that thousands more islanders can support themselves in their retirement. It’s never too early to start to save.

Contact Sean Gillease
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