Pensions used to be something that most people applied for on starting a new job and then ignored until they hit 65. But over the last few years the subject of saving for retirement has become something of a national emergency.

A population that lives longer and retires earlier is drawing on more pensions than ever before. Meanwhile, the ailing stock markets mean that the funds to cover this are shrinking rather than growing. The government is so concerned by this that it is considering bringing back compulsory pensions to stem the crisis.

Fearful that there will not be enough cash in their coffers to pay retired staff, or that pension payments will become a black hole in their finances, private companies have been driven to action. Many are closing their generous "final salary" schemes, which guarantee earnings after retirement, and switching to "money purchase" schemes dependent on the vagaries of stock investments.

While the private sector takes action, many in the housing sector seem to be deaf to the warnings. Those organisations that have taken precautions are few and far between. The rest face a nasty shock once a new accounting rule comes into force in 2005. This rule will force companies to report the details of pension schemes in profit and loss accounts, revealing the extent of the shortfall. The shakier the fund looks, the more investors will be put off.

The subject of saving for retirement has become something of a national emergency

The ultimate consequence of ignoring the warnings is that associations will suddenly face massive bills to plug the gap. Without the option of raising rents, in extreme cases associations might have to siphon off money meant for housing.

At the same time, associations that can afford to stick to generous final salary schemes would do well to market the scheme as a perk. Offering an employee-friendly final salary scheme could be a much-needed carrot to tempt new talent into the sector.

Suddenly scrapping existing policies would be an ill-advised kneejerk reaction, but associations must start seriously scrutinising their pension funds. Whether they are overwhelmed by the scale of the problem or fail to fully appreciate its size, those that ignore the alarm bells do so at their peril.

Source

Housing Today