200 Not Out!
Well, if you’d told me back at the beginning of 2008 that I would today be writing my 200th BeeLine of the year I don’t think I’d’ve believed you; I think the most we’ve ever put out in one year before was around the 145 mark or something like that.
I don’t know why, but Ms Bruun feels I should celebrate this double century in some way by reminding BeeLiners of what’s gone before in this oh so busy year. To start with I thought it might be good to go through each month’s output and see if I could trace a theme from it all; that seemed a good plan. I did start to do just that, but got sidetracked while re-reading one of the very first BeeLines I wrote this year back in January. It’s a bit like when I try to sort out my comic collection back at home; I start out on the project, but always end up reading them instead.
It hit me, though, that the issue raised in that BeeLine (and in many others before it) is even more relevant now than it was back then. Now we have the Pensions Act all passed and everything and sitting on the statute books. Auto-enrolment into pension saving from 2012 now looks to be set in stone. And yet the underlying problem that sits right at the heart of our pension system is still unresolved.
I make no apologies for reprinting here the full text of that BeeLine that I wrote back in January. Read it again if you have the time, but read it in the knowledge that nearly a year on the issue of poor value pensions resulting from the interaction with means-tested handouts still hasn’t been resolved. Read it in the knowledge that the triviality limit has been frozen until 2016 due to the capping of the Lifetime Allowance. But read it most of all in the knowledge that ten million people are to be auto-enrolled into our imperfect pension system now we have the Pensions Act 2008 on the statute books.
I wonder if I’ll be writing the same BeeLine this time next year? And the year after that? And the one after that…..?
12 December 2008
Here’s the reprinted BeeLine from 9th January 2008; it was called ‘It Pays to Save’.
“It Pays to Save”
You’ll remember the following exchange [from the BeeLine yesterday on the Parliamentary debate1 on the Pensions Bill] between Peter Hain, the Secretary of State for Work and Pensions, and Chris Grayling, his Conservative shadow:
Chris Grayling: This issue can be best distilled in one simple question: will it be possible for an individual on low pay to put aside £25,000 for retirement and end up no better off for having done so?
Mr. Hain: Is it possible for anybody to save for their retirement through a pension scheme of one kind or another—a workplace scheme, an occupational scheme and so on—and end up not being as well off as they expected? Of course it is. Is it a consequence of the Bill that people will automatically not be as well off? No.
That exchange, between the two people right at the very top of our pensions tree in the UK, spoke volumes to me and should do to you too. It goes to the very heart of what is wrong with not just the current Pensions Bill’s proposals, but our pension system in this country as a whole.
Put simply, pensions are not suitable for everybody in the workforce today because of the way private savings can be eroded in value, or even rendered completely valueless, through interaction with the widespread system of means-tested entitlements for pensioners.
I had the chance just over a year ago to put the same question that Chris Grayling asked this week to Mr Hain’s predecessor, John Hutton, when we both appeared on the Today programme early one December morning on Radio Four. I didn’t get an answer on that occasion as any of you who heard the broadcast will know, but these things are hard to talk about in radio sound-bites I guess. That experience led to me drawing a cartoon story that night as part of the ‘Pension Conversations’ series that I produce every week for Pensions Week magazine. I’ve reproduced a copy of that page here as I suspect many of you will not be familiar with the strip:
Pension Conversations, written and drawn by Steve Bee. This page entitled “It Pays to Save” was produced in December 2006 and first published in Pensions Week magazine in January 2007.
Obviously the reproduction of that page is too small for you to be able to read, so Ms Bruun has kindly broken the strip up into chunks so that you can follow the story. Up front I have to say that it’s not the best drawing I ever did, many of the others in the series have been much better, but I was in a bit of a bad mood when I was drawing it. Hopefully, what it lacks in artistic merit is made up for in some regard by the power of the message it conveys. It is easier to get messages across, I think, in cartoon form than in media sound-bites and I’ve found this particular series of strips also seems to get through the defences of those who are seemingly immune to pages of words. Here’s the opening sequence:
To start with it’s worth saying that I deliberately chose two women as the characters for this particular conversation as the catastrophic loss of value to people’s savings that is euphemistically referred to as ‘100% withdrawal’ is much more likely to happen to women than to men. It is also the case that even after these current ‘reforms’ are enacted that one in four women will still be at risk of losing the value of their savings in this way. But, to get on, the conversation continues as follows:
The two women in the strip are both in the same position with regard to their state pension entitlements, but one has saved and the other has not. Once again, I deliberately chose a figure of £25,000 in pension savings as it is far in excess of the trivial commutation limit that allows people to undo worthless pension savings. Once you’ve saved that much in a pension there’s no way out; you can’t even get back the amount up to the triviality limit (which currently stands at £16,000). The denouement, if you like, unfolds as they come to understand each other’s financial circumstances:
The figures there, of course, are out-of date now as the strip was drawn and published in the 2006/7 tax and benefit year. But the principle is no different today. Indeed the position is slightly worse I suppose given the way that means-tested entitlements are still being allowed to increase at a higher annual rate than the basic pension entitlement. Anyone who wants to can, of course, update the figures for themselves by simply looking for the current rates on the DWP website, which is where I got them from in the first place.
The title of that cartoon story, ‘It Pays to Save’, was of course meant to convey irony and it is echoed in the panel where the saver repeats the mantra. It’s something I’ve heard a lot of people saying during the long-running debate on Personal Accounts and I think the issue needs to be nailed down now that we’ve reached the Committee Stage of this Bill.
To paraphrase the exchange between Chris Grayling and Peter Hain that I quoted at the start of this BeeLine the question was ‘can someone invest £25,000 in a Personal Account and end up not one penny better off than a non-saver?’, and the answer was ‘yes, but it’s not just Personal Accounts it’s other pensions too.’
That, of course, is just what I, and I hope you, have been waiting to hear ministers say right from the moment the Pensions Commission presented its report all those years ago now. The implication since then has been that the current pension system and pension industry in the UK have in some way failed in the job of distributing pensions to everyone in the workforce. That’s a perception I think our industry should have fought long and hard against instead of merely accepting it as fact. I’ve always thought that. If you’ve been following my BeeLines you’ll know that.
The thing is this current debate on Personal Accounts has only now just reached that part of the process when the fact that pensions are not suitable for everybody in the workforce is finally becoming more widely understood. Soon it will be apparent to everybody involved, I hope, that the problem is not that our pension system is no good, or that our industry is in some way not capable, but that widespread means-testing quite simply puts a finite limit on the number of people for whom saving is suitable. It’s quite possible that given that limitation our economic distribution of pensions thus far has gone as far as it possibly can.
It is this problem that the government needs to address if it wants private pension savings to spread more widely throughout the workforce; there is not a ‘magic’ product solution that has somehow eluded the industry that will suddenly get people saving at last. Indeed, if the means-testing issue could be resolved so that it really would pay everybody to save then my view is we’d have no need for the palaver and cost of introducing Personal Accounts at all; the existing pension system including the hundreds of thousands of compulsorily established, but empty, Stakeholder pension schemes coupled with auto-enrolment would surely do the trick with just a tweak or two…...
9 January 2008
1. House of Commons Hansard Debates for 7 January 2008.
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