BeeHive > BeeLines > The Sound of Silence
The Sound of Silence
Sad to say I have to report that my last posting on James Purnell, the current Pension Minister’s, DWP weblog has not been replied to. I guess I’m not surprised. The questions I was asking were hard ones to answer. You know, it’s not as if I was trying to find out if he’d enjoyed his holiday or something like that; essentially I wanted to know why the Government is going ahead with this crazy idea of taxing people for saving, or not giving proper value to poorer people’s savings - whichever way it feels more comfortable to say it - it amounts to the same thing if it happens to you. Questions like this are what Americans refer to as ‘the elephant in the room’ type. They’re awkward.
By writing this BeeLine today I’ve decided to bring my so-called ‘Battle of the Blogs’ with the minister to a close. There are other things I mustn’t neglect if we want to keep the BeeHive on track and I don’t want it to be driven by one issue, however important.
To end this chapter off though, I thought I’d put one last posting on the minister’s weblog, to counter this notion that employers’ money paid into pension savings can be thought of as ‘free money’ and thrown away. Essentially my concern is that the poor value attached to pension savings in these proposed Personal Accounts could make them unsuitable investments for the very people they are supposed to help. That will make it very difficult for advisers and employers to recommend that employees put their lifetime savings into the scheme. The response that an employer’s money isn’t important and that ‘value’ should only attach to an employee’s savings is wrong-headed; in my view at least.
Copied below is the posting I’ve put onto the minister’s weblog this afternoon. I’m pretty sure it won’t be answered, but as I said yesterday, it’s not just what you say that counts, but when you say it. This is what I’m saying; and November 2006 is when I’m saying it:
James,
I realise that it is probably far too late to change the course the Government has set for the proposed introduction of personal accounts, but nevertheless I do feel we really should be able to nail down the central issue you and I have had so many exchanges about these past few weeks. By doing so, maybe we can bring our so-called ‘battle of the blogs’ to a close. My view all along has been that what you are really about to implement effectively amounts to the imposition of a 40% tax on the modest pension savings of ordinary people. I know you can’t agree with that.
I notice that in your more recent explanations when you refer to the value that will attach to savings in personal accounts you have taken to saying that “those on the savings credit can expect to receive £2 for £1 invested in personal accounts if they save over a good working life.” This idea that £1 can be turned into £2 will, I think, be misunderstood by many and could lead to people thinking that there is genuine value in saving in this way, whereas there really is not. It is for this reason I have expressed my concerns at this stage about the level of consumer protection that will be put in place for this national savings scheme that will, uniquely, be populated by means of auto-enrolment in order to take advantage of inertia. My view is that people should fully understand the nature and value of financial investments that they make before they commit to saving in the first place.
If the Government is going to promote this new pension option in such terms as £1 becomes £2, then I really do think it would be only fair to point out to potential savers that that will only be the case for those who also end up in receipt of means-tested credits in retirement. For wealthier people who do not qualify for means-tested support the return from the same scheme of personal accounts would turn each £1 invested into £3.33 (in their case the Government wouldn’t be keeping the lion’s share of the return). What you are proposing is clearly much better value for the already better-off than it is for the less well off with only modest levels of pension saving.
I know this is essentially the same argument that we had a few weeks ago when we were discussing the hypothetical case of a lady having to save enough to buy a £20 a week annuity only to receive £11.70 a week more than her non-saving neighbour, but I am concerned that the marketing spin of ‘£1 turns into £2’ makes that catastrophic loss of value less apparent.
It seems to me it would help people when deciding whether to join the personal accounts scheme if it were to be marketed under something like; ‘We’ll turn every £3.33 of yours into £2’. That may not be snappy enough, it’s my first stab at it, but I’m sure the ad people could refine it. What do you think?
8 November 2006
Source: Department for Work and Pensions Pensions Reform blog 8 November 2006.
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