Today’s big story of course is the Government green paper on the future of the basic state pension. Currently one of the lowest in the developed world it stands at a paltry £97.65 a week (assuming you have a full National Insurance record) rising to a minimum income guraranteed top up figure of £132.60 if you have no other income from other sources such as a company pension scheme.

But this minimum figure top up is means tested and it led to some of the neediest of our society failing to claim what they were entitled to. Many older people especially older women with incomplete NI records due to home care breaks, were of a generation too proud to go cap in hand as they saw it to some bureaucrat in the social security office asking intrusive and personal questions.

What is now being proposed is a flat rate simple £155 per week basic state pension, available to all new pensioners from 2015 irrespective of child care breaks. (Of course, another proposal mentioned in the Budget was the merging of income tax and National Insurance too so that all dovetails nicely if they can ever get the system to work!!).

There will be additional positives for the Government too in a subtle boost to the NEST scheme. Why? Simply this. NEST, while giving a pretty minimal outcome for an inadequate 8% contribution overall, would have been sufficient to remove people from qualifying for the means tested M.I.G. Consequently the view went, why bother to save for one’s old age when the government would provide anyway. Some pundits were predicting a significant opt out from NEST as a result. Of course, the best answer is adequate work place pensions but that’s another story!!

This Green Paper for once seems a very sensible simplification and is to be welcomed by all (though no doubt some will not). Iain Duncan Smith conceded what those of us in the pension industry have been saying for years. That the State pension system (in fact ALL pension systems in the UK) are just far too complicated and frankly are a turn off to saving. Yes it is unfair to existing pensioners who will not benefit from the change but as we know, the coffers are not bottomless. As Steve Webb said on BBC Radio 4

“Tomorrow’s pensioners do face a very different world. They will, on average, be working for a lot longer, they will be retired for longer, they won’t on the whole have final salary guaranteed pensions in the way that perhaps their parents did. We therefore need a simpler, clearer foundation because more of them will now be asked to save for their retirement.”

A further reform announced today concerns linking the increase in State pension age to increasing longevity. We already know that State Pension Age is to rise to 65 by 2020 And then gradually to 68 by 2040.

By providing automatic rises this will depoliticise the argument as it’s pretty tough to argue with science and the science tells us we’re all living longer. It’s a price we have to pay…get over it.

To make up for the dearth of blogs over the past couple of weeks, here’s the second in two days!! Today boys and girls, we are going to talk annuities. The Government, in an effort not to let a day go by without some sort of pension announcement, are expected to call an end to the compulsory purchase of an annuity from pension savings by the age of 75.  What’s all that about then I hear you ask.

Well, as we all know, pension savings are a pretty tax efficient way of building up a fund for our retirement. They are tax free at the point of input (ie saving) but are taxed as income at the other end when we start to draw our pension. In order to ensure that HM Revenue and Customs get their fair share of your hard earned cash, you were required to buy an annuity so that you had some income to tax. An annuity is essentially an insurance policy that promises to pay you an income for life in return for a large chunk of cash when you retire. It’s a bit of a lottery really. If you buy an annuity at age 65 and sadly get run over by a bus the next day, that’s tough, the insurance company is laughing all the way to the bank since they don’t have to pay you anymore, and your family get nothing in return. Of course, if you are lucky to live until you’re 100 it’s the insurance company who may be crying since they’ve probably not gambled on you living so long and have underpriced the annuity. Swings and roundabouts though, and usually the insurers come out on top.

What the Government are now saying is this. They recognise that tying up your pension pot until retirement could be difficult for many who may wish to have access to those savings for good reasons, buying a house for instance before you become too old to enjoy it. They also recognise that many people wish to leave something for their families when they die and annuities would not allow that. However, they still want their tax take and they don’t want people to spend, spend, spend and then become dependant on the State in their old age. So people are going to be able to draw on their pension savings during their working life but there will be strict conditions attached to prevent them blowing it all on wine, women (or men) and song.

But with this flexible approach to retirement savings will come added complexity. And the reality is that for Mr and Mrs Average, an annuity will still be the right way to go. For them, it will guarantee an income in retirement. It is really only the wealthy who have other independent savings who are likely be able to take full advantage of these new rules. Reputable Financial Advisers will I hope steer away from selling unsuitable flexible lifestyle products from those who really should take the annuity option although for heavens sake, remember the Open Market Option for annuity purchase too.

So yet another Defined Benefit Scheme closes to future accrual. The Alliance Boots Scheme has announced that it too is joining the exodus from excellent, albeit unaffordable, pension provision into the less risky (from the employers perspective that is) Defined Contribution arena.

Really we should not continue to be surprised every time a ‘household name’ takes this decision. It is as inevitable as the Brits losing at every sport they turn their hands too (except maybe cricket on a good day or snooker but the first is boring and the latter not really a sport at all – and is boring – hm, I detect a pattern developing…)

But back to the blog. The real challenge for employers will be to encourage their employees that moving into DC is going to be a ‘good thing’ and for this, good communication with their employees is going to be key. The downsides are genuine and obvious of course. The risk of investment falls firmly onto the shoulders of the individual, rather than the employer. While the choice of the default investment fund selected by the Trustees or within the contract will be crucial (since this is where the majority of members will remain) the fact that this decision has been taken out of their hands will be woefully insufficient to win the hearts and minds of their employees and that is assuming that the employees understand just what is being done in their name. A one size fits all asset allocation strategy just won’t cut it either.

Financial education in the UK is appallingly inadequate, partly due to the extreme complexity of the investment choices available, partly through basic inumeracy from schoolage upwards and partly through investor or member apathy. It will be vital to get across some very hard truths about retirement in the future - not least of which is the very simple formula – We are all living longer and living longer = bigger pension pots to pay for it. The money/savings to see us through possibly 20 years of retirement has to come from somewhere. And that somewhere is the pocket of the individual during their working life. It’s a hard lesson, and not a particularly welcome one when you are struggling to put a roof over your head and bring up your kids.

But the lesson must be learnt. And soon. Because we will more and more have to begin depending on ourselves and not expect someone else and certainly not the State to do it for you.

In a ‘well who’d ever have thought it…’ kind of moment, the Confederation of British Industry (CBI) has announced that according to its research, final salary schemes are the cause of more misery for companies than…well…money purchase schemes.

For those of you who find the whole thought of pensions far too depressing and confusing (and let’s face it, that’s most of the population including several pension lawyers of my acquaintance!!) let me try and give a short guide to the difference.

A final salary scheme (sometimes called ‘defined benefit’) promises benefits based on a percentage (typically 1/60th) of final salary times the number of years of membership of a scheme. The amount of contributions paid in bear no direct relation to the pension that comes out the other end. If the pensions promised are higher than the monies in the scheme, the scheme is in deficit and the employer has to make up the shortfall.

A money purchase scheme (sometimes called ‘defined contribution’) is a WYSIWYG type of arrangement. What you see is what you get! The contributions going in are invested and what you get out in pension is the sum of those contributions plus any investment return over the years. Nothing more.

The open ended promise of a traditional DB scheme was great when times were good, the economy strong, business thriving. Indeed, things were so good that if there was too much ‘fat’ in a scheme, the tax man required schemes to reduce the surplus. Companies took ‘contribution holidays’ as there was no other legal way of getting their money back generally.

But then the economy took a nosedive, deficits grew alarmingly, the stock markets (in which a significant amount of pension scheme money was invested) tumbled and the regulatory regime got tougher. Companies found themselves in a no win situation. On the one hand, business income was falling, on the other, they were being required by law to pump more and more into the pension scheme. You can only bleed the patient so much before he turns up his toes and dies.

Unfortunately, it takes Governments a long time to realise that the Goose has ceased laying Golden eggs. On Wednesday, let’s hope the Chancellor doesn’t finally provide the coup de grace…but I suspect, he will not be able to resist just one more thrust of the tax knife into the DB scheme.

Axa has announced that it is launching a competition to find a new name for “pensions” after a survey revealed that 18% of respondents associated it with “grey” and 72% of younger people associated it with old age. Well – d’uh…yeah!

It is perhaps this last statistic (or rotten lie -depending on your point of view) that is the most worrying.

The hard sad fact is that unless you have begun some sort of decent non-State pension provision by the age of 30, you are likely to retire in penury come age 65 (or 68, 70, take your pick).

If you are lucky enough to have access to an employers’ pension arrangement (one to which they contribute whether it’s Defined Benefit or Defined Contribution) take it. It will be far better than anything the State pension will have to offer. It won’t allow you to retire in luxury but if you can, contribute as much as you can afford.

While I fully understand of course that putting a roof over your head, food in your stomach, and clothes on your children’s backs take priority, don’t leave it until the kids have left home before thinking about how you will survive when you can no longer work. By then (bar a lottery win) it will be far too late.

Another name for a pension? The Australians call it “superannuation”-a long word but why not…