Pensions, like death and taxes are one of life?s inescapables. How assiduous this Government has been in lecturing us on our pension responsibilities. Last week, social security secretary Alistair Darling signalled his intention to change the rules that currently allow workers to opt out of company schemes, which will affect more than a million employees. The pension industry also joins in the refrain, carrying advertisements alternating happy couples splashing out on grandchildren, with old age penury. We, the public nod sagely, agreeing that we should be shovelling as much dosh into our pensions as possible. It?s just, we can?t afford to, for the time being.
The recent Mintel report, which showed that 5.4m adults do not know when they will be able to afford a pension, made headlines, but were unsurprising. Looking at the findings, I found it more interesting that almost one in five professionals, (ABC1s) had made no provision at all, presumably while trying to keep up all that middle class front. And 52% of those pensionless families said they would start a pension, if they did not have so many other financial commitments. With mortgages, child care and living costs on rip-off island, as the tabloids now dub the UK, it looks as if we?ll all be down at B& Q in our seventies, working at dishing out advice at the gardening desk.
This dismal survey struck me as revealing ingrained customer resistance to buying pensions as a product per se. Again hardly surprising, Mintel rightly called on pension companies to make their products simpler to encourage more families to take out a pension. For even now, after all the reforms, we are still asked to buy into what appears a mysterious, not terribly advantageous product. Indeed, the pensions industry itself, still rooted in Victorian obtuseness, strikes me as bearing similarities to the mediaeval Catholic church, boarding schools, circuses, workhouses and the Monarchy. Creaking institutions of varying degrees of popularity which radically and regularly reformed or were superseded by something else.
Even the goody-two-shoes among us , who push money over to the well-established providers, do not have a clue what is going on in those huge shiny glass offices, many in the central belt. Tomorrow?s pensioners, so used now in other areas of their lives, to feeling in control and switching suppliers at whim, are somehow reduced to fourteenth century peasant churchgoers, who do not speak Latin. Just what is a FURBS, an NRA, a SDC, CPA, or, this one, my absolute favourite an UURBS? I recommend the Plain English guide to pensions available on www.plainenglish.co.uk/pensions.
The unspoken assumption by Government and the industry, is that by not putting enough aside, we are a feckless lot who?ll come bleating for a state hand out. But as we increasingly question the cost and value of other financial products, not least in this era of low inflation, the increasingly steep 1.5% charges on package investments, why should we pay up on a pension scheme. Just what is in it for us?
We are not entirely stupid. Falling gilt yields and lengthening life expectancy are driving down annuity rates and threatening the viability of money purchase schemes. In 1990, a married man with a retirement fund of 100k would have received an annuity of ?10,405. Now, it is just ?5,702. What tones of horror were in the voice of the analyst on the Today programme last week who, when discussing the shortfall many large company pensions schemes are facing, suggested that in future employees would be faced with ?cheaper packages?, such as money purchase schemes, in which the employer put very little. Like stakeholder and personal pensions. Shock, horror. The very packages being pushed to the rest of us.
Now I wonder whether the hoi polloi leading the reformation? Questioning whether the creed of the pension really is the key to a aterially comfortable old age. How much greater flexibility, would we have if we saved up capital outside traditional pension vehicles, however volatile? And as for younger people, what sort of spin can the pensions industry possibly give to a product were they are supposed to pay ever higher premiums to stand still. From 2001 the Government will be introducing a new pensions regime which will ?encourage? millions of us to invest in money purchase schemes. Just how the pensions industry will sell them?
Next month, sees a major industry conference in London, titled Designing & Marketing Stakeholder Pensions. I would be particularly interested to see the delectable Stewart Ritchie, Director (Pensions Development) Scottish Equitable give his little talk titled ?Is ?Stakeholder? a mugs game for Life Offices?? The title seems to imply that if there is no money in fleecing the punters, why bother? Oor Stewart can tell me if I am wrong! And that?s the trouble with pension lectures ? they?re too hellishly boring to sit through to find out!
Clearly there are pressing problems in the structure of pensions which are going to need to be addressed and soon. At least at the moment, the bull market has meant that pensioners have been retiring with bigger pension pots, but for the rest of us who might be facing more bearish stock market conditions, the annuity rates hardly inspire us to save. Alistair Darling standing over us like Fraser in Dad?s Army telling us we?re all doomed, is not going to change that.
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