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BeeHive  >  Press Articles  >  Making sense of the MIG

Making sense of the MIG

I was speaking to a group of my actuarial chums the other day about the way means-tested state benefits play havoc with pensions distribution in our modern world of pensions. We were having a reasonable discussion on the subject of the Minimum Income Guarantee (MIG) and the soon-to-be-with-us Pension Credit system and I was saying that the value of the MIG was a serious obstacle to many of the people in the workforce who are so far unpensioned. At the level of £100 a week, or around £5,000 a year, the capital value of buying a pension equivalent to the MIG could be something like £80,000.

Well, that started it off; half the actuaries there thought £80,000 was an understated figure and the other half thought it was overstated. Now, I donít know whoís right and whoís wrong, and I donít particularly care - I only read it in a newspaper somewhere anyway. The point is itís a lot of money to put aside for a benefit that is provided free to those who donít save and thatís a problem that goes to the heart of any attempt to provide a means-tested safety net from the state. The level of saving weíre talking about is something like the value of the average house in the UK and is therefore not inconsiderable - thatís the point I was trying to make.

I wanted us to go on to discuss whether pensions reform could ever be effective if it did not include a complete reform of the way pension savings interact with means-tested benefits and whether it was cost-effective to distribute pensions which are not inherently suitable for all. I then wanted to go on and explore some ideas I have for disinvestment as an alternative to enforced annuity purchase for those whose lifetime pension savings are not sufficient to purchase a pension equivalent to the MIG. But thatís not the way it panned out. We spent the whole of the time arguing over what the correct figure was, whether there was in fact a correct figure, and, where were all the index-linked gilts going to come from anyway? I found it quite an exhausting afternoon, but I would say that if anyone ever tells you a group of actuaries can never agree on anything, donít believe a word of it. Believe the whole sentence!

Steve Bee

First published in Pensions Management, 01/10/01