banking & financePensions in theHeadlines Again

service and final salary is no longer
workable. Pension funds built on thisprincipal have been decimated byincreased life expectancy on the one

Long time British expatriates may be forgiven if they have lostsight of some of the issues that now haunt their former peersin their home country. Whilst headlines in Jakarta may focus onpolitical matters, corruption cases or the threat to remove thepetrol subsidy on private cars, fears about the economy andthe future dominate the newspapers in the UK.

hand and the poor performance ofstock and bond markets on the other.
Even ‘safe’ UK government bonds are
now paying less than 2% per annum,
which is less than inflation. The
burden of funding a pension scheme
has even affected the bottom line ofmany large companies. Hence thereason why many have closed theschemes to new entrants and have
reducedthebenefits

toexisting

employees – that is, if the unions will
let them! The new model for pensions
is one where employees bear therisks of the markets. They make theircontributions as usual but what theywill receive is no longer guaranteed;
their pensions will depend entirely on
how their fund performs, just as foranyone who invests in a private plan.
It is still better than not having a planbut it means that income in retirement
will now be much less certain than
was previously the case.
WHAT ABOUT THE PUBLIC SECTOR?
Here we have a different situation
because pensions are paid out of the
public purse as opposed to a fund thathas been painstakingly constructed.
Many public servants are now enjoying
This was certainly my impression whenpension system has suffered a

retirement benefits superior to those

I took a break in the UK over Christmas“seismic collapse” to leave millions

in the private sector. But the pressure

and the New Year. Here are examples ofof savers facing a bleak retirement,on national and local budgets has

the headlines:

new figures show today.

also become unsustainable, hence

Financial Times, 31 December: $6.3
trillion wiped off markets in 2011.

the moves by the government to
WHAT IS THE PROBLEM?
Basicallythesubstantially reduce the value ofcompany

pensions and increase the retirement

Financial Times, 3 January: Economics

pension has become unsustainable.

age. If you have been following

experts foresee a bleak 2012.

A reported 90% of firms’ final salaryinternational news reports over theschemes

withpast year you will have seen the many

Daily Express, 3 January (full spreadexperts declaring the “golden age” ofstrikes taking place as teachers andhave

traditionalbeenclosedon page 1): PENSIONS IN CRISIS AS

pensions over. The fact is that the oldother public servants protest the attack

FUNDS COLLAPSE – Hard time aheadmodel where companies guaranteedon their long-enjoyed benefits. Thisfor millions. – Britain’s privatea final pension related to years of

is not going to go away; on the one

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hand the country just cannot afford

how the markets work. They do notin 2011. It is important to have several

to maintain the status quo and on theexpect

employment

strings to your retirement bow. Theseother hand workers are not going toprotection. Consequently it is easier

can include a variety of assets beyond

give up their benefits easily.

for them to find jobs since employers

stocks and bonds such as gold andEuropean-type

are not faced with the same liabilities

other commodities, selected hedge

WHAT IS HAPPENING IN OTHER

as their counterparts in Europe. This

funds, property, asset-backed lending

WESTERN COUNTRIES?

is one reason perhaps why the firstand other alternative investments. InThe same situation is true of justsigns of recovery are emerging in theall cases, professional advice should

about every western country. People

US, looking at the latest employment

be sought.

are living longer and governments

figures.

and companies can no longer sustain

formulating labor laws in Indonesia

If you are British and have a frozen

previous levels of benefits. Workers

might wish to take note. Forcing

plan of significant value in the UK you

haveausterity

obligations on employers may be ofshould take advantage of the newmeasures on the streets in France, Italy

benefit to existing employees but it

QROPS facility which will allow you

and especially Greece, which could

discourages companies from hiring

to transfer it offshore and have more

become the first country to default on

new ones.

control over it. Moreover the plan will

been

protestingThose

responsibleforits debts and leave the Eurozone thisremain part of your estate whereas theyear. Should that occur it will be very

SHOULD

painful for its citizens as the country

CONCERNED?

EXPATRIATES

do! Caution must be exercised however

picks up the pieces and tries to rebuild

They should be, but I generally findwhen transferring the plan as there arewith its old currency. Should contagion

they are not! Many are in denial or

potentially costly pitfalls.

occur in Europe, resulting in theare convinced that the assets theycollapse of the Euro, the consequences

have

would be felt worldwide and global

to see them through retirement.

PLAN?

markets could face a very volatile

Some have no pension plan at all!

This would be a plan which allows youtime. Economists generally believe

The problem with living overseas

to live life to the full during retirement

this will not happen but the possibility

is that it is no longer possible toto the point where the funds run out

is certainly there.

maintainpension

on the day you die and your chequeaccumulatedaarehome-based

BEsufficientUK plan is likely to disappear when you

WHAT IS THE PERFECT RETIREMENT

and few companies overseas offer ato the undertaker bounces! However,

The US has the same basic problem

replacement. Expatriates are left tounless you can plan what day that isofand

their own devices or are sold a typical

likely to be or if you have family you

dwindling returns from investments.

changing

demographics

life company offshore savings / pension

would like to provide for, then maybe

To illustrate the effects of the latterplan. There is nothing wrong with the

you need to take some time out to do

it is of interest to note that in the 15

latter provided that the structure is fully

a little retirement planning. Protectingyears from the end of 1984 to theunderstood. The plans allow you toagainst death is easy; you just takeend of 1999 the total return from theaccumulate units in a variety of funds

out a life policy. Protecting against

S&P 500 stock index was more thanthat in normal times should produce along life requires much more effort!

740%. This amounted to an annual

decent return after 15 or 20 years. But

compound return of more than 15

stopping contributions or cashing inper cent. By contrast, since the end

early can result in heavy losses so suchof 1999 the stock market has nota plan should be undertaken only ifeven kept pace with inflation, thus

you are confident of seeing it throughresulting in a negative real return. It is

its full term.

little wonder investors are frustrated
Colin Bloodworth

and that pension schemes are in theHaving just one plan is not enough,red. Having said this, Americans areespecially if the plan is focused on

more pragmatic; they generally dostock market funds. Plan values todayof PPI Indonesia and can be contacted at colin.

not go out on the street to protest

have been considerably depressed bybloodworth@ppi-advisory.com or +62 21

and have a better understanding of

the crash of 2008 and the further falls

Director of PPI Indonesia, has worked as a financial
adviser in Indonesia since 1992. He is a Director

3004 8024.

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