What's the problem with Pensions?

Over the last few years, I think everyone will have noticed the huge amount of press coverage relating to the pension challenges we all face in the years to come.

The biggest problem facing State Pensions is that the Government do not have a pot of money from which future pensions will be paid, which means that some of the Tax and National Insurance Contributions they collect is paid directly to pensioners. At the moment this is achievable as every three working people are supporting one pensioner, however in twenty years time each pensioner will be supported by only two working people, which may be difficult.
The main reason for this is that people are living longer so the proportion of pensioners increases each year. I recently heard at a seminar I attended, that with each decade that passes, people on average live three years longer, which means that children of today can expect to live well past their hundredth birthday.

A factor which has affected private pensions is the recent terrible stock market performance, (although the stock market has performed better over the last two years). This is the main cause for some people losing all their company pensions.

Some company pension funds were reduced by 50% and if a company went bust it would be unable to make up the deficit. Those who had already retired would continue to receive their full pension, however this could use up all of the pension fund, leaving nothing for people who had not yet reached retirement age.

The Government have since April 2005 made this less likely to happen as they have set up the Pension Protection Fund, which should guarantee that people receive at least 90% of their expected pension up to a maximum of £25,000 per annum.

Solutions to the pension problem are as follows:
1. People will have to retire later.
2. Pensioners will have to receive a lower pension.
3. It will be made compulsory for people or companies to pay money into private pension policies.