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Funded pension plans face equity threat

Diminishing equity returns could make the Conservatives&#39 proposal of

relying solely on privately funded pensions dangerous, according to a

leading thinktank.

The Institute for Fiscal Studies&#39 Election Briefing claims equity returns

have been high historically and it is not certain this will continue. It

says increased private pension saving worldwide could affect returns in the

same way as a decreasing workforce. It is recommending a mix of pay as you

go and funded provision.

Under the Tory election manifesto proposals, younger people would be

allowed to opt out of National Insurance contributions, investing instead

in totally private funded pensions.

IFS programme co-ordinator and author of the report Carl Emmerson says:

“As the world&#39s population ages and more people go into funded pensions, we

do not know what equity returns and annuity rates will be.”

Conservative Shadow Social Security Secretary David Willetts says: “All we

are doing is offering people an option. We are not forcing anyone into

this. I am not regulated by the FSA so I must be careful but if you had

invested your NI contributions in equities you would be much better off

now. The problem now is the amount of pensioners retiring on incomes much

lower than expected.”

Scottish Life head of pensions strategy Steve Bee says: “Depressed

conditions could affect the state pension as well as investments.

“I think the writing is already on the wall for the basic state pension.

The Conservatives&#39 proposals are just a reflection of this.”

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