I was reading the latest edition of Saga Magazine at the weekend (look – it was lying around on my parents’ coffee table alright – I am obviously far too young to have a subscription myself!!), and began reading the main article.
It contained various interviews with some of the great of the pension and age industry about what they would like so see as the next development in legislation or societal planning.
One of the contributors was (inevitably) Ros Altmann who made a very good case for the simplification of the State Pension system in the UK – dreaming of a simple flat rate of about £140 per week. A good start perhaps but can I suggest something even more radical. A Government who would be prepared to look at the mess all their predecessors have made of the Occupational Pension Scheme regime and who would be prepared to say “Enough, it all stops here and from today the system is this and this alone…”
I leave it to other far brighter minds to come up with just what ‘this’ is going to be but a money purchase arrangement requiring a significant employer and employee contribution rate with no opt out or alternative provision may not be a bad start.
Will industry howl? Of course but the cost of making (say) a 10% basic salary contribution will still be a lot less than the current 25% average DB contribution rate and probably not much larger than they are likely paying into their own DC arrangements. And making employees contribute at least 5% does not seem to me to be all that onerous. 15% total will still not guarantee a life of luxury in retirement of course – but it’s far better than the false promise of NEST with it’s total 8% (eventually!!) and removal of a significant number of the target market from means tested benefits.
But of course, it will never happen. There are too many votes in not rocking the boat. Tinkering around the edges is far better. And the ‘just a bit too difficult’ basket just gets bigger and bigger.
Meanwhile, industry responses to the proposal to remove the compulsory retirement age in employment (and of course, potentially pension schemes) suggest universal plaudits. As we move to a DC environment (and maybe even my cunning plan above) then clearly the proposal makes sense as workers and employers can continue to pay in for as long as they wish while employment continues. But I wonder how the taxman is going to look on this whole thing. Why does the cynic in me feel that he will not want to wait another 10 years or so for his cut of the monthly pension payments? There is a large black hole in Government finances – prepare to see the end of the tax free lump sum and restrictions on tax relief on contributions going in methinks…!!
Jennie advises large multi-employer schemes as well as smaller single employer arrangements and has wide experience of both Defined Contribution and Defined Benefit schemes. Jennie qualified in 1986 originally as a criminal prosecutor. She sits as a Magistrate in her local justice area and is an Approved Chairman and Deputy Chair of the Bench Training and Development Committee. Jennie was formerly Legal Director of the Occupational Pensions Regulatory Authority. When her busy practice allows, Jennie likes to indulge her passion for travelling. To consult Jennie on any corporate Pensions matter, please call her on +44 (0)20 7749 2700 or send her an email by clicking below:
Whilst at first it may appear attractive on reflection do I really want HMG to have yet another slug of my money so they can decide as and when I can spend it ?
At least at present I have the option to contribute to a privately run scheme…or not as the case may be….
Less rather than more State intervention is more appealing !
But it wouldn’t be HMG who would have control. The Employer may select the insurance company who would provide the arrangement (and they would have to satisfy you as to client service standards and investment performance) and you as the member would perhaps control the choice of investment funds but you and the employer wouldn’t have any choice in paying your contribution…seems OK to me!!
There are plenty of examples of investors doing better than fund managers over the years notwithstanding the tax advantages of pension contributions and then taking into account the ability to utilise the funds without restriction
I think I’ll stick to putting the money under the mattress ( so long as that isn’t an offence under the Money Laundering Regulations )