Its Project paper Accounting and Finance level 6 or final year

1
Critical Literature Review
Of
Pension Crisis in UK
Prepared by
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1. Introduction
The paper seeks to cite the research of the various analysts and their explanation of the present
state the Pension system in the United Kingdom. As per the past few years records the country is
facing pension crisis due to increased percentage of early retirements in both public and private
sectors.
The pension system of the United Kingdom is considered as a good example for other countries,
as it is offering pension with low social security expenditure as well as private schemes that
voluntarily cover high finances (Ambachtsheer, 2007). But as per the current developments and
research it has come out that the model has shown weaknesses. The most discouraging that has
arise is the underfunding of the benefits of occupational schemes that follows the bear market.
But the records also states that there has been crisis of pension in the country wherein the
number of people eligible for pension are increasing and the government is unable to cope with
the current situation and this situation arises due to the fact that more and more people in the
United Kingdom are opting for early retirements.
Mis-selling of personal pensions on an on-going basis and there the Equitable Life Insurance
Company has been into losses and failed to keep up to the needs and requirements of the state. It
is important to understand the there should be low long term interest rates on the funds of
pension because high long term interest rates will impose an obligation on the members of the
pensions fund holders. The obligations imposed become expensive with each year as it is to be
paid off in future where these low interest rates increase the value of liabilities. (The
Comprehensive International Financial Information Portal - Monetos.co.uk).
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2. Review of literature
The literature review covers a time period staring from the year 2008 till present that is 2013.
The United Kingdom have faced the pension crisis a number of times, though at one point it was
considered as one of the most favouring country for pension funds.Before we commence the
analysis of UK‟s pension system, it is important and useful to highlight various points of UK‟s
pension trends so far (Clark, 2006).
The United Kingdom is considered as one of the unusual countries that are counted in OECD
countries as they have old population at relatively early stages. In the year 1990, the country had
highest ratio of the pension holders in comparison to those who were in the working population
(Ambachtsheer, 2007). Due to the high fertility rate for an OECD country that is around 1.75,
there have been cases of slow ageing in the United Kingdom, although high levels have been
reached earlier. There has been a drastic rise in the life expectancy of men and women in the
country that is in the year 2000 it was 76 for men and 81 for women but it is expected to have a
drastic rise in the year 2031 that 81 for men and 85 for women. It is the level of participation of
labour force that determines the challenges being posed in an economy by the existence of a
large population of older people, also in context of Gross Domestic Product.
As per the Disney et al of the year 2003, the rate of men participations of the age 55-59 declined
from a stable 80% in the year 1980 to approximately 45% in the year 1992, while on the other
hand for the men aged 60-64 the participation level has declined from 65% to even below 30% in
the same period. In some measure the early retirement feature has been noticed in those people
who have occupational pensions and have got public schemes of the disability benefits. But the
causes of such reasons can be partially due to the manufacturing firms where the old workers are
left with inappropriate skills, no demand in labour market and their mind-set of rejecting lower
pays in comparison to the younger labour force. The aspects that are being talked about are those
which deals with the early retirement features of the occupational pension schees.as per the
House of Lords (2003) also, there are two types of age discrimination in the labour force market
that are implicit and explicit age.
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According to the pension expert David Blake, the United Kingdom is a part of those few
countries in the Europe which are not facing serious issues regarding the crisis in pension. As per
Blake, the reasons for this are really straightforward. The state pensions in terms of replacement
ration and the proportion of average earnings make a part of the group of lowest ratios in Europe,
and in comparison to this UK has a strong backing up system of funded private pension sector
and in comparison to complete Europe, the population is less rapidly ageing and the government
of United Kingdom has made sure (since 1980s) that they take sufficient measures to prevent
pension crisis in the country. But it is a really interesting fact that when Blake says that UK is
“not facing a pension crisis” by this he means that...