Any more for any more?
Many thanks to all 2,303 of you who have already signed our Proper Pensions petition on the No. 10 website.1† Thatís a lot of people.† Iím writing this BeeLine to let you know that the closing date for the petition is later this week on Friday 20th April.† We kept the petition on the short timeframe of just two months and it has come round almost already.
The timing of our call for Government to think again about the way that auto-enrolled pension savings might be devalued for many people is crucial now that the Easter break is over and the Parliamentary session that will set the foundations for our future pension environment is underway.† The decisions taken in the next few months are probably the most important pension decisions Government has considered for the last decade.
There are a number of big pension issues that we should be concerned about at the moment and between them they amount to the Ďcrisisí we read about all the time in our newspapers.† One big issue is the recent closure of so many of our occupational final-salary pension schemes.† Another is the ever-rising bill to pay for the public sector pensions that will be taken from future taxes.† But our worst problem by far is that, as the Pensions Commission Report2 pointed out, half of the working population in the UK right now either have no pension savings at all or, even where they do have savings, those savings are insufficient. So the big issue in pensions these days is how do we get half the workforce saving for retirement?
Clearly, if such savings are to be realistically worthwhile then it will only be through a joint savings effort by employees, their employers and the Government as well. And, in a nutshell, thatís what the Governmentís new proposals are all about really.
What theyíve has come up with as an idea is to build a new national pensions savings scheme that all employees not covered by existing company pension schemes will be swept into, probably in 2012, through the process of Ďautomatic enrolmentí. I like to think of this as Ďvoluntary compulsioní.
The Government has kept away from the idea of compelling everyone to save for a pension (one of the options it had to solve this crisis) and has instead settled on a voluntary system where employees without pensions will be automatically enrolled in the new scheme, but will have the option of opting-out if they donít want to be in it. If employees do choose to stay in the scheme, however, they will be required to make regular pension contributions and their employers will be compelled to make contributions too. In this way the new scheme can be thought of as being voluntary for employees, but compulsory for employers.
The contribution that employees will be required to make if they stay in the proposed scheme will be 4% of their earnings between £5,000 pa and £34,840 pa.3 The employer will be compelled to contribute 3% of the same band of earnings and that will be topped-up with a bit of tax relief from the Government of 1% of the same band of earnings. In all that will make a total pension contribution of 8%.
All of this, however, is still at the proposal stage and there are some big issues yet to be hammered out between the Delivery Authority thatís being charged with putting it all in place, the Government and those running the existing pension schemes in the private and public sectors. There are real fears that the way pension savings can be devalued by interaction with the vast array of means-tested entitlements available to pensioners these days might make saving for a pension for many people something of a futile exercise. Thatís a big problem the Government refuses to acknowledge and itís the fundamental issue that so many of us are now asking them to sort out before they rush ahead too fast with the detailed legislation this summer.† For anyone likely to be in receipt of means-tested handouts in retirement the unfortunate reality is that under the Governmentís current proposals the value of their private pension savings could be reduced by anything from 40% to 100%.† To me thatís just crazy, particularly the fact that some good people who will think theyíre doing the right thing by saving could find that theyíre not one penny better-off than non-savers.† Those of us in the industry who understand how our arcane system of pensions and benefits works in practice have a duty to raise our voices on this important issue.† If we donít, who will?
Donít get me wrong; it would be a good thing if we really could get ten million more people saving for a pension; thereís no doubt about that.† But it will be of no use in a voluntary system if every pound saved in a pension does not make savers at least one pound better-off than non-savers.† Thatís all weíre asking Government to consider with this petition.† It doesnít seem too much to ask really does it?†
As the petitionís time draws to a close this week Iíd ask any of you who havenít signed it yet if you might consider doing so and maybe any of you who know others who might want to add their names to it you might take time to let them know about the petition which can be accessed through the following link:
17 April 2007
1.† 10 Downing Street website, E-Petitions, Economic and Finance
2.††The Pensions Commission First Report
3.† Personal accounts: a new way to save, Department for Work and Pensions website, Pensions Reform†
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