How To Do It: Take a look at your pension plan

Under proposed UK legislation, fund managers will have to show the monthly income savers can expect in today's money.

How often, on these shores, do we see insurers and financial advisers, with their graphs and spreadsheets, give unrealistic and exaggerated figures that take no account of inflation and the reduced purchasing power?

For example, if Dh1,000 is discounted at 5 per cent per annum, it would be worth only Dh585 in ten years. At 10 per cent, the return would be even more worrying showing a balance of Dh386.

Readers should always remember that the purchasing power of money diminishes with time, by how much depends on economic conditions. Never compare the current value with the equivalent value in the future.

The Faculty and Institute of Actuaries have drawn up the formulae used for the new more realistic forecasts. A 40-year-old, who saves Dh270 per month for the next 25 years and then retires at 65, would currently be told that he would expect Dh195,400 under mid-range illustrations.

This equates to a monthly pension of Dh1,300; under the new regime he would be told that his pension would be Dh460.

According to the experts, Dh460 is a more realistic figure. It can also act as an incentive for people to make them realise that perhaps they are not putting enough away for their retirement.

This could also act as a wake up call to those living in the Gulf that perhaps another look at one's pension plan would not go amiss. Those lucky enough to have a company plan should not be surprised to see less in the pot this year as compared to 2001.

Do not bother to look any further back because that will only cause further distress.

If some company schemes are under-performing, what about government systems? As baby boomers become greyer and older, the number of retirees is increasing at a much faster rate than the youngsters, who, in theory, should be the ones supporting the pensions.

Governments have few options, they could raise the retiring age or actively encourage corporate and individual plans.

It is a sad fact of economic life that more money is spent on holidays every year than is put away in a pension scheme. In the UK, the Association of British Insur-ers suggest that there is a Dh21 billion gap between what is and what should be put away for a comfortable retirement.

If it is that bad then what about the other European countries? In Greece, the government expenditure on state pensions is currently 12.6 per cent of GDP; this figure is set to rise to almost 25 per cent by 2050. A worry for the Greeks when the UK shows 4.4 per cent and 5.5 per cent over the same period.

These real money projections have the acronym, SMPI (Statutory Money Purchase Illustrations).

Under the new UK guidelines, these will have to be shown in annual statements issued to all members of defined contribution company schemes and all personal pension plan holders, including those with stakeholder pensions.

Would it not be appropriate for local companies to carry out the same exercise so that a real comparison with one's likely pension can be made with one's current earnings?