Pensions World

Pension problems are mounting. Editor Stephanie Hawthorne sets the priorities for the next government

Within six months there will be a general election. Sandwiched between the enormous national debt of £100bn and high unemployment, the pensions plight of millions will struggle to get the attention of whichever government is in power, but a new Secretary of State for Work and Pensions will have much to do.

The hard fought pensions consensus is in disarray. Even over basics such as the state pension age, there is huge disagreement. 

Research from the Prudential shows that the proportion of workers in employment beyond statutory retirement age is set to double to 1.8m people by 2019. Most people are also living longer healthier lives, so the state pension age should reflect this. Yet delaying the state pension age, even by one year, can mean real hardship for many people. How many electricians and plumbers can clamber up walls or bend their knees under sinks and confined spaces after the age of 65? For hundreds of thousands, the choice will not be between work and a pension but the dole and incapacity benefit. Where are the sedentary jobs for manual workers who find such arduous work after 65 an impossibility? State pension age is one of the most tricky pension issues (and there are many).

Would the establishment of a permanent pensions commission be the answer to the state retirement age conundrum?

End delay

The government could also bring forward auto-enrolment – the cost of delay is well known in pensions circles. A few extra years’ contributions from both employer and employee could make the difference between penury and frugal comfort in retirement. It is also absurd that it is sometimes simpler to apply for a loan than buy a pension.

Legislation should be removed which prevents risk sharing as advocated by the Association of Consulting Actuaries. The requirement for compulsory annuitisation at 75 should be increased to 80 in line with increasing longevity.

More urgently, active membership of private sector pension schemes fell from 4m in 2006 to 3.6m in 2008, according to the Office of National Statistics Occupational Pensions Survey in 2008, while active membership of public sector schemes increased from 5.1m to 5.4m over the same period. Clearly, private employers need to be given encouragement and support to maintain or even introduce new good occupational provision. While it is heartening that more public sector employees will enjoy a comfortable retirement, the affordability nettle needs to be grasped without delay.

It is wrong that there is almost a pensions apartheid with many public sector employees still enjoying final salary provision, funded partly out of taxation from private sector employees whose own pension provision is often precarious.

Trust in so many spheres has been replaced by cynicism and the duty of the next government must be to restore confidence in pensions both for employers and employees. It is easy to put off doing anything about pensions, both by the individual and by the employer, because humanity is programmed to look at immediate needs rather than long term planning. But in pensions the situation is made worse by the 48,000 pages of regulation. Is every page so vital? Do even specialist lawyers of years’ standing know what all the regulations say?

While the ordinary citizen will never be able to comprehend all the legislation, both the state and employers must do more to educate people. It is the stuff of dreams to imagine that the average worker could ever say “pensions are fun”, but could we at least aim to make pensions “cool” as well easier to understand? If we could do that, people (and the government) might stop their apathetic shunting of pensions into the “too difficult” file. Someone else’s problem? No. It is yours and mine. Vote wisely.

stephanie.hawthorne@lexisnexis.co.uk