The neighboring Spanish government recently introduced a plan to create a public employment pension fund. In Portugal, on the other hand, during the most recent election campaign, there was talk of a mixed pension system. This led to the analysis of some models already working in Europe. To Gonzalo Rengifo, Director General of Pickett AM for the Iberian Peninsula and Latin AmericaThe initiative, launched by a Spanish executive, wants to follow the model that exists in the UK, Based on forcing companies to contribute to the employment pension system through personal accounts. But… How exactly does the UK public pension system work?
Tima Varga, Director of Pension Solutions at abrdn, The UK Public Pension System uses a payment model that allows current contributors, working people and their employers to support pensions for current retirees. The percentage of salary in this system, called National Insurance (NI), is determined using income limits, so that the rate to be paid often improves and none of NY’s contributions are paid, including the level of income below that. “This approach aims to make the system accessible to all,” he explains.
On the other hand, the amount of the state pension is a fixed amount, which aims to contribute to the minimum standard of living during retirement.
Private arrangement
In addition to direct disbursement, the government promotes and protects the provision of private pensions in a variety of ways. Especially with measures reflected in various parliamentary laws. Pensions are paid for by vehicles created by employers, and are a key component of the NGO allocation, with one-third of the individuals investing themselves in the pension investment settlement. (I.e. personal pensions).
To increase participation, the Pensions Act of 2008 required employers to automatically enroll workers in the pension scheme in the workplace. In addition, the government created the National Employment Savings Trust (NEST), which sets out criteria for qualifying pensions, designed to enable all employers to fulfill their obligations in this context. “These measures, including a gradual increase in minimum contribution requirements, will help create more savings for retirees,” the expert revealed.
Democratization of risk
Pensions are subject to another change in line with the trend described as risk democratization. Limited benefit (DB) pension plans – also known as final pay – offer benefits that are calculated on the basis of pay and years of work, and are gradually being phased out by most companies as they prove difficult to maintain. “In fact, these growing commitments have caused significant financial problems for some of the companies that promote them.”
There are strict (and higher) financial requirements before the employer is released from the obligation to finance the promise of benefits, in order to prevent the loss of accumulated benefits if the employer leaves.
Pension Security Fund
Related law Provides additional protection for members of pension denial pension schemes – This time against the bankruptcy of the employer – in the form A fund Pension Protection (PPF), It collects the performance liabilities of 90% of the subsidiaries. PPF is financed with risk-based fees and is responsible for acquiring failed companies’ plans, including financial management and payments.
Meanwhile, funding raised through other major types of occupational pension schemes, Limited Contribution (DC), has seen a significant increase, with the majority of workers enrolling in the DC scheme. “The benefits of the DC plan are based on the funds accumulated in the worker’s savings path, which accumulate due to the contributions of the worker and the employer and the return on investment (as well as losses and expenses) at that time.”
The pension fund can be accessed upon retirement and withdrawn in cash, converted into guaranteed income (by purchasing a lifetime annuity) or invested.
As limited contributions quickly become the dominant form of pension disbursement, more flexibility is provided for individual savers and retirees, The government has focused more on its efforts in providing information to educators and savers, To facilitate better planning. “This includes providing free advice through a pension-wise service to all CD fund members over the age of 50, and is currently developing a pension dashboard scheme that aims to display all of an individual’s pension information in one place. .
Looking to the future, the expert considers it necessary to establish the place of retirement as part of the broader financial well-being of the individual. “Pension plan members need to be well-prepared to make complex decisions and realize that they bear the risk and responsibility for the consequences. More personalization will promote engagement and significantly enhance outcomes, while a holistic structure allows members to consider their financial careers more broadly and prioritize savings.” Providers, including the government, employers and financial institutions, play a key role in facilitating delivery and timely decision making.
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