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Briefly outline the nature of the ‘pension’s crisis’ in the UK. Evaluate the potential policy responses to address the crisis and explain the roles of non financial institutions in pension provision. Free essay! Download now

Home > A Level > Economics > Briefly outline the nature of the ‘pension’s crisis’ in the UK. Evaluate the potential policy responses to address the crisis and explain the roles of non financial institutions in pension provision.

Briefly outline the nature of the ‘pension’s crisis’ in the UK. Evaluate the potential policy responses to address the crisis and explain the roles of non financial institutions in pension provision.

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Briefly outline the nature of the ‘pension’s crisis’ in the UK. Evaluate the potential policy responses to address the crisis and explain the roles of non financial institutions in pension provision. essay previewBriefly outline the nature of the ‘pension’s crisis’ in the UK. Evaluate the potential policy responses to address the crisis and explain the roles of non financial institutions in pension provision. essay previewBriefly outline the nature of the ‘pension’s crisis’ in the UK. Evaluate the potential policy responses to address the crisis and explain the roles of non financial institutions in pension provision. essay preview

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Briefly outline the nature of the ‘pension’s crisis’ in the UK. Evaluate the potential policy responses to address the crisis and explain the roles of non financial institutions in pension provision.

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Briefly outline the nature of the ‘pension’s crisis’ in the UK. Evaluate the potential policy responses to address the crisis and explain the roles of non financial institutions in pension provision.

Lord Turner summed up in his 2004 report the major issues with the pension crisis in the UK with this statement; ‘There are significant problems in our pensions system; there is a major demographic challenge.’ The issue has been highlight further via the Turner Report (2005), changes in IAS standards and the coming general election in 2010.

Whiteford and Winehouse (2006) stated that there will be an ageing population with retirement increasing from an average of 10 years in 1970 to 20 years in 2004. This is concurrent with there being fewer young in the demographic spectrum. What makes this situation worse is that currently 1 in 5 16 – 24 olds are unemployed or not in full time education (L.Tobin). In the long term some of this ‘lost generation’ may never return to work. This trend will lead to a further decrease in National Insurance (NI) contributions with an increase in benefits and education spending further acerbating the problem.
The UK population are not saving enough for their pension. The Social Security Act (1986) removed the requirement to be a member of an occupational membership scheme. Membership was made voluntary and only around 50% of employees joined. David Blake (2000) has stated that this was due to the rise in the stock market at this time leading to the growth of DC pension schemes and inertia. The Act also linked the state pension to changes in price rather than income, hence depressing the pension relative to average earnings. At this time this was deemed appropriate as it ran alongside a system of mainly DB occupational pensions but since the 2000 the viability of this system has been under question due to many schemes being closed.
The origin of many pension deficits come from; firms taking contribution holidays in the 1990’s when there was strong market performance, Gordon Brown’s removal of the dividend tax credit for pension funds in 1997 (at a cost to pension funds of £5billion annually) and the Dot Com crash in 2000 meaning the value of stocks and shares fell dramatically many not regaining their value prior to 2000 e.g. Geocites.
Legislative changes to accounting rules, FRS17/IAS19, to improve transparency places the deficit on the company’s balance sheet. It is presented analogously to an annual trading loss. Recently Glasgow City Council tried to sell one of their services arms to a private firm but the investor was put off by the pension liabilities which were clear to see on the accounts.
The introduction of the PPF (2005) as well as the ...

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