How one sentence could hail a new future for pension saving

The government may finally have made it pay to save in a pension, writes Steve Bee

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by Steve Bee on Jun 27, 2010 at 00:01

How one sentence could hail a new future for pension saving

It was good to read the other day that Iain Duncan Smith and Steve Webb, our new Secretary of State for Work and Pensions and our new Pensions Minister respectively, have said that they intend to ‘reinvigorate retirement’. The following is a direct quote from Duncan Smith:

‘Britain used to have a pensions system to be proud of, but due to years of neglect and inaction we are left with fewer people saving into a pension every year and the value of the State Pension has been eroded, leaving millions in poverty. We must live up to our responsibility to reinvigorate the pension landscape.

‘People are living longer and healthier lives than ever, and the last thing we want is to lose their talent and enthusiasm from the workplace due to an arbitrary age limit.

‘We also need to recognise that to meet the challenge of providing an affordable, stable pensions system in a society with ever increasing life expectancy, people will need to work longer.

‘And we will reward their longer working life by making sure that when they do retire, their pension is worth getting. We are taking radical action to restore the earnings link with the triple guarantee, ensuring our pensioners get the best possible deal.’

I was very pleased to read all of that, but even more pleased to read the following quote from Webb:

‘Our plans to reinvigorate pension saving will be underpinned by automatic enrolment into workplace pensions from 2012. But we need to make sure we get the details right, which is why we’re announcing a thorough and speedy review, to make sure that it pays to save.’

I can’t tell you how long I’ve waited to hear a Government minister say ‘to make sure it pays to save’. At last! I really didn’t think I’d ever hear it! A few years ago when I was engaged in an exchange of e-mails with a previous minister in the previous government that was dubbed ‘the Battle of the Blogs’ in the newspapers all I was asking for was a simple guarantee to those about to be auto-enrolled that every pound saved in a pension should make savers at least a pound better-off than non-savers.

My view then, as now, was that if it does not pay to save then the auto-enrolment reforms are sure to fail. It’s not something that can be brushed under the carpet and kept secret for decades while unsuspecting savers put money away that is destined to earn them a poor return; in some cases no return. We simply cannot have people saving all their lives only to get to retirement and realise they would have been better off not to have bothered. That cannot be right. When people save for a pension they are doing the right thing by themselves and by the rest of us. They deserve a pension system that does right by them!

Joe and Josephine Average, I would guess, would be amazed to think that every pound they save in a pension doesn’t always make them a pound better off than their non-saving next door neighbours if they are among the millions set to receive means-tested support when they are old. The new pension reforms must not let them down...

Steve Bee is managing pensions partner at Paradigm Pensions. Visit jargonfreepensions.co.uk where you can find a simple pensions A-Z.

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5 comments so far. Why not have your say?

There can be absolutely no question that the savings habit should be seen to be beneficial.

The BUT lies in the fact that the sentiment is contained in the midst of a wider statement, and may only be there as sanctimonious padding. So it is not yet a guarantee, merely a comment - there is still work to do tie a politician down to his word. Has it ever been done?

The other side of the statement is that it appears to presage more legislation, which is often the basis of yet more complications. So, a step forward. Let’s work to make sure it doesn’t signal two steps back.

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We pay NI which is supposed to go towards providing our pension. This is not enough to live on so people have to claim benefits just to makes ends meet. Now you advocate we pay again . If everyone got a proper pension which covered all our basic bills there would be no need for people to have to claim extra benefits and the government could save money by getting rid of a large part of the department for works and pensions.

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My father-in-law was sales director for a major manufacturer and my Mother-in-law his PA. During those years they both contributed to the company pension scheme that was to provide them with a handsome payout on retirement and a guaranteed income for the rest of their lives.

A few years ago they both reached their respective retirement dates within a few weeks and a "holiday of a lifetime" was all booked to celebrate with part of the lump sum.

Sadly they were informed just two weeks from retiring that there was no lump sum to come nor any pension either. The reason? A Chancellor who had destroyed the pension fund with taxation and greedy fund managers who had mis-invested the rest for their own gain. The holiday was saved by a family whip-round but not the income they had saved for.

My concern about these promises is summed up in one question -

How do we avoid getting another Gordan Brown in the future?

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For those who were robbed and cheated by Brown/Balls and Zanuliebore, we are stuck, and little chance of compensation as a result of their perfidy.

Those who saved and then were cheated have as much chance of compensation by any government as Brown/Balls compensated the Equitable life pensioners.

It would be fit, and justice, if their pensions (Brown/Balls and Zanuliebore) were treated in the same way they treated the Equitable life pensioners.

Mind you they have quite substantial savings (or should have) by reason of their fiddling their expenses (many, many MPs, on all sides of the House) so they will not be in penury for lack of a pension being paid to compensate those they cheated by reason of blind ideology.

After all, what is sauce for the goose..........!

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Roughie

Jun 28, 2010 at 23:28

I currently own two successful businesses, and so am very used to making choices about current and future planning issues. However, when it comes to Pension planning I am hopeless. I am very nervous about investing in a scheme that will give me very little retirement benefits, and am nervous about risking my future to another company that could go bust if the wrong investment manager got his/her hands on the money.

I have spoken with pension advisers but ironically they regularly start the conversation with.. "if you can tell me a good plan then I will invest in it too..." That's just great isn't it. So the reality is, I haven't invested in a Pension for the last 7 years. I have however bought some other investment properties and shares, but I have bought them from taxed income and will in the future loose a significant proportion of this to capital gains tax. I also have not benefitted from the tax advantages of investing in a pension. i am now 34 years old and over the last year have begun to get more nervous about my future plans. I just wish the government would create a system that was stable, and fair and that I could invest into for the next 30 years without having to worry that in 5 years the next chancellor will come along and change the system again.

What worries me most is investing a £million into a pension plan, to then be forced to have to buy an annuity at 75 or whatever, and then at 76 if I die my kids get nothing. To my mind I would rather invest the money in something else and not take the tax benefits of investing in a pension and then at least the kids will get what is left when i am gone. Happy thoughts at aged 34 eh!

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