Too Rich to be Poor; Too Poor to be Rich
Itís always the people in the middle who get hit isnít it? Thinking back to a recent BeeLine (Personal Account Sales Aid) where we were the first to report the astonishing fact that the Government people calculate that someone on £10,000 a year can expect to get a pension of less than £2 a week in return for twenty years of persistent saving in a Personal Account Iíve (not surprisingly I suppose) been inundated with e-mails on the subject.
The astounding figures that were provided by the Government in answer to a question posed in the Lordsí debate on the Pensions Bill (asked by Baroness Hollis) demonstrate quite clearly that the benefits of these reforms for the so-called Ďtarget marketí (low to medium earners) will come more from restructuring the state pension schemes than from encouraging pension savings. If you missed it, by the way, that BeeLine published back in the second week of July is something you really should check out. The table it contains, which came directly from the Hansard transcript, is something everyone involved in pensions should read and understand; it puts much into perspective.
For the record, my view on whatís happening pension legislation-wise at the moment is that it all boils down to just three main things:
- The rot is being stopped in the Basic State Pension. That doesnít mean that the basic pension will improve, just that from 2012 it is likely to be stopped from getting any worse.
- The State Second Pension (S2P) will eventually become a flat-rate entitlement. That doesnít mean that people will pay lower National Insurance Contributions, by the way; theyíll pay the same, but the benefits will be more redistributive in future (hence the title of this BeeLine).
- All non-pension-saving employees in 2012 will be automatically enrolled as voluntary pension savers by the Government.
As the figures in that BeeLine from July show so well, it is the combination of the first two of these that will do much to improve the long-term pension prospects of those in the Governmentís target market. But the second one will surely have the opposite effect for those middle earners who sit just above that cohort, many of whom may well already be saving for the future in a pension scheme. Money doesnít come from nowhere, the improvements for some will be funded by losses from others. Itís the way of things.
To me that means it is probably more important than ever that the message gets through to those in the middle that they will need to save more in future if they want to stay on track for the retirement plans they are working towards. Hopefully that simple message will come across as we approach 2012 along with all the noise about how brilliant it will be when everyone in the Ďtarget marketí gets auto-enrolled into saving.
18 August 2008
Source:†Lords Hansard debate 30 July 2008.
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