Signs that a business is in trouble often show themselves in corporate vanity – expensive new offices, rising executive expense claims, new departments and rebranding. Personal Accounts, the Government’s complusory pension scheme http://www.georgeemsden.co.uk/2009/11/do-you-know-what-day-it-is/ has had a £360,000 rebrand to NEST http://www.padeliveryauthority.org.uk/documents/press-release-nest-07-01-2010.pdf as people find the P-word or Pensions, boring. There is even a video for people whose reading attention span is a bit short and a rare piece of honesty http://www.padeliveryauthority.org.uk/nest-video.asp as it starts off “Workplace pensions are changing”. Trouble is, there has been non-stop pension change since 1997 which has compounded the confusion the new measures claim to solve. It’s about as honest as someone who mugged you offering you a cheap loan.
Not mentioned of course, who will provide the back-up system to run the scheme for it’s 3 – 6 million members? There is only one bidder left now http://www.ifaonline.co.uk/ifaonline/news/1566067/gwrs-withdrawal-leaves-bidder-personal-accounts One also wonders what sort of pension the staff at NEST will have? Defined contribution/money purchase - where the employee carries the investment risk? Or will it be final salary like most of the the public sector (and of course MPs) where the employer takes the investment risk – supported by the taxpayer? Don’t be surprised if the admin is all done overseas to save money – call centres could be busy.
To be fair, there is some good news here. The idea of the members’ pensions being run as a not-for-profit corporation is a good one so you will have your Personal Account after all. But unless people save enough for retirement it will be pointless, and the average amount you need to save to get a decent fund for your pension is about 15 per cent of earnings. If you don’t believe me, come and see me for a pensions chat.
But there is more dishonesty and contradiction here.
a) Taxes are rising so how are people supposed to save more when real incomes are falling? OK you get the tax back with pension contributions, but a huge turn off for many would-be pension investors is having to buy an annuity. Haven’t had a request from a hard up 30 or 40 year old to “cash in my pension” lately, but all IFAs get them.
b) We are all living longer thanks to the NHS but the maximum annuity purchase age of 75 has been unchanged for decades. Government has really dug its heels in here. The Association of British Insurers is now suggesting http://www.trustnet.com/News/DisplayStory.aspx?id=53251 that it should be raised to 80. Logic behind refusing to raise the maximum annuity purchase age is that pension or annuity income is taxed as earned income and the Government starts getting its tax relief back.
c) At the same time, the State Pension Age is being raised to 67 in 2024 and then 68 in 2046 - again because we are living and working longer. And some think it should be raised to 70 http://www.pensionsadvisoryservice.org.uk/news/2009/july/lord-turner-pension-age-should-be-70
d) Saving 15 per cent of earnings may solve someone’s own pension problem but would have dire consequnces for the rest of the economy. The current recesssion is caused by a lack of spending and people are saving more now. Anglo-Saxon countries do not generally save much – the savings ratio in the USA was negative not so long ago – in contrast to Europe and Asia where the propensity to save is much stronger. In fact, these people have often expressed puzzlement when they have moved here and been amazed how little people save in the UK – and this was when times were better. A huge jump in savings would cripple the leisure industry for example, not to mention the restaurant business.
Some leadership from MPs might help? How about if they had money-purchase pensions and took the same risk as the millions of NEST members? Would the next Government be so daring? Waiting for hell to freeze over is not usually a worthwhile exercise, so don’t expect much here – except maybe another rebranding.