Sacrificing savings and pensions for the greater good

When the man in charge of our pension system says that pensioners and savers just have to put up with what’s currently happening to them, you know for certain that the Government has turned its back on them. Yet that is effectively what Steve Webb, the Minister for Pensions, said in an interview with Ros Altmann, claiming that the appalling returns for savers and pensioners are a necessary trade-off in order to get the economy back on its feet.

Usually we criticise politicians for being too short term in their outlook. Steve Webb, however, is focused on the future. He is rightly proud of his achievements, the triple guarantee for the basic pension and auto-enrolment, which he believes will get private sector employees saving. He is looking forward to passing legislation that will see the state basic pension rise above the level of means testing.

These changes should make pension saving more widespread and make fairer the treatment of savers at the hands of the benefit system. But they will not in themselves make saving worthwhile. That depends upon the Government making a commitment to enact economic policies that protect the value of our savings

The route to a prosperous economy … Continue Reading

Pensions: the public sector fights back, the private saver walks away

On 30^th November public sector workers plan to strike to defend their pensions. Changing public sector pension schemes so that they are indexed to CPI and not the higher rate of RPI is estimated to be equivalent to a 15% reduction in the value of a pension. On top of this millions of public sector workers are being asked to pay more towards their reduced pensions.

The private sector also has an issue with pensions. For the majority, current pension arrangements are simply not fit for purpose. The question of CPI versus RPI does not enter into it. Annuity rates have fallen by 45% over the past 16 years so all a typical pensioner can afford is a fixed income for their retirement, guaranteeing that their living standards will fall as they get older. For those currently on a fixed income the impact of inflation over the last two years has been to reduce their spending power by about 10%.

Ed Miliband is telling the public sector unions not to strike, but at least they have a weapon to wield. Workers in the private sector feel so helpless that many have simply walked away; currently only one in three contributes to a pension. … Continue Reading

Improving equity between public and private sector pensions

A by-product of the current dispute over who should fund public sector pensions has been to shine a spotlight on the comparative inadequacy of private sector pensions.

The level of pension in the public sector is totally out of reach for those on an equivalent salary in the private sector, with a few exceptions among the ever dwindling number of private sector defined benefit schemes. Lord Hutton, who led the commission that came up with the proposed changes to public sector pensions, has said: “Pension reform must not simply become a race to the bottom”.

So what can the Government do to initiate a race to the top rather than the bottom?

… Continue Reading

Who has the cushiest pension of them all?

Those saving for – or trying to survive on – private pensions may envy public sector workers and the pensions they’re trying to protect. Treasury figures today reveal that funding a full final salary pension for a mid-level teacher on £32,000 a year would require a pension pot of £500,000. According to ONS figures, that is 20 times the size of the average private sector defined contribution scheme.

But it is a bit rich hearing so many MPs, from the Prime Minister downwards, lecturing public sector workers and saying that their pensions expectations must be more realistic. For, despite repeated promises of reform, MPs still retain their own index-linked, final salary pension scheme.

Taxpayers contribute three times more than MPs to their pensions and an MP only has to spout hot air for 15 years to build up an annual pension of £24,000, which a private sector employee would need £700,000 to fund. If MPs should die, their spouses get a lump sum of four times their salary and an annual income of five-eighths of their pension.

Maybe public sector workers would be less indignant if our MPs led by example. The Leader of the House, Sir George Young, is due to make a statement on MPs’ pensions before the summer recess, or what you and I would call a seven-week summer holiday. Will MPs give up without a struggle? Or will they fight just as hard to defend their gold-plated pensions as the public sector workers they’re now criticising?

Pension delay for women – time for action

The Government is currently trying to pass a Pensions Bill that will equalise men’s and women’s state pension age at 65 in November 2018, and then raise it to 66 by April 2020. This is 6 years earlier than previously planned.  AGE UK and Saga are campaigning for the Government to rethink this proposal since it will result in a delay of up to 2 years for women born between 1953 and 1959 to receive their old age pension.

The campaign is gaining support amongst MPs and it was reported last week in the Sunday Times’ that the Treasury is now considering a reprieve for the hundreds of thousands of women affected.

The table below shows exactly how the proposed changes will affect them unless the government acts to stop this legislation becoming law.

Anyone affected should write to their MP and lobby them to stop this legislation altogether. Time is running out since the second reading of the bill is scheduled for the 20th June.

With the basic state pension worth around £5,000 a year, a woman facing a two year delay in receiving her state pension will lose out on a massive £10,000. … Continue Reading

Increase in state pension age for women

It’s been said that the state pension system assumes that if you’re a man you have a pension and if you’re a woman you have a husband. It has always been difficult for a woman to get a fair pension out of the system and recent changes have been no exception.

Women in their 50s face having to wait up to two extra years before they can claim their basic state pension, as a result of the Coalition Government’s decision to fast track the increase in state pension age from 2016 for both sexes.

In its Coalition Agreement, the Government promised that the pension age for women would not start increasing before 2020, but it now plans to increase their pension age from 2016.

Half a million women face a pension age rise of over one year and over 300,000 will face a delay of over 18 months.

There is clearly strong feeling that the Government is not acting correctly on this. Many women who have already retired to care for relatives or who are not well enough to work face an unexpected gap in their income which they will have extreme difficulty plugging. … Continue Reading

Saver shock at retirement

Any insurance salesman will give you the ‘you can never have too much insurance’ patter. While this isn’t technically true, one de facto form of cover has long been wrongly ignored by many retirement savers because of potential cost and opaque information on whether to ‘buy’ it. We’re talking about defined contribution pension pots being ‘fire-proofed’ and the insurable event is inflation, specifically the RPI. Unfortunately, the majority of retirees don’t take out an index-linked pension because the financial hit is so great, yet its implications are far-reaching.

An RPI-proofed policy is the only investment guaranteed to beat inflation for pensioners, yet many prefer not to invest in them.

However, retirees who take out a ‘level’ fixed annuity (or annual income for life in exchange for a lump sum) can be pole-axed by the annual rises in the cost of living. With only a set sum of cash every month, the creeping price of fuel, food, bills et al can clobber the finances over the years. … Continue Reading

Making it pay to save

Last week, speaking on the future of the state pension, Secretary of State for Work and Pensions, Iain Duncan Smith, said “We have to fundamentally simplify the system. And we have to make it crystal clear to young savers that it pays to save.”

Mr Duncan Smith has already succeeded in putting forward welfare reforms that make sure you are better off working than not working.  Now he is preparing the ground for reforms that will ensure that you are better off saving than not.

Proposed State Pension Reforms

The proposed reform to the state pension will mean that those who have saved will receive the same support from the state as those who haven’t. The proposed £140 week basic state pension may not be enough to sustain your desired lifestyle, but this is obviously not the point. Beyond that it is your responsibility to save for a pension and under this scheme you will at last have a fair basis to save from. Your savings will no longer be a substitute for Government benefits that you would otherwise have been entitled to, had you not saved.

Making it pay to save has been Save Our Saver’s message from the start. These proposed changes to the state pension would be a major step forward, but the reforms must not stop there. … Continue Reading

Should I make up my National Insurance contributions?

Fail to pay enough National Insurance before you retire and you could miss out on the full state pension. But does making up your missed payments make financial sense?

If you don’t pay enough National Insurance over the course of a tax year you’ll receive a letter asking if you’d like to top up your National Insurance contributions.

This usually means sending a cheque to HMRC with the promise of a better return on your state pension in years to come, but is it really worthwhile paying up, or should you just pocket the cash?

Here’s what you need to know about National Insurance contributions and how to work out whether to top up if you’ve missed a payment year:

What is National Insurance and what does it pay for?

National Insurance isn’t strictly a tax and while it may certainly feel that way, its aim is to benefit those who contribute to it.

The main areas funded by National Insurance contributions are the NHS, unemployment benefits, sickness and disability allowances and the state pension. … Continue Reading

It’s not that public sector pensions are too good, it’s that private sector ones are too poor

Back in 2008 David Cameron used the word apartheid to describe the widening gulf in the value of pensions between the public and private sectors. The call was followed by a suggestion that the public sector should adopt the defined contribution model of the private sector. But ending pension’s apartheid by levelling down to an inadequate system is not going to help anyone.

The call to rein in spending on the UK’s public sector pensions is commonly backed up by quoting the estimated total liability for them, currently thought to be in the region of £1 trillion; whilst this might be an impressive figure it is not very helpful. What it represents is an estimate, at today’s prices, of pension rights that have been accrued up until now and are likely to be paid out over the next 60-70 years.

The truth is that adequate pensions are expensive and public sector schemes currently pay pensions to 3.1 million pensioners, so the amount of money involved is vast. But the real concern for the Government isn’t the overall liability – it is one of cash flow. The gap between contributions in and pensions paid out is growing. Typically the Government makes an employer’s contribution of 14% of salary on top of the employee’s contributions. But still the Office of Budget Responsibility is forecasting that the Treasury will need to top this up by £4 billion next year, rising to over £10 billion in 2015/16 to meet expected pension payments. … Continue Reading