- Pensions need an image makeover!
- Pension contributions feel like a 'tax' to many employees - will they sign up for that or choose to opt out?
- NEST and auto-enrolment will fail without further radical reforms
Today's results from the ACA Smaller Firms Pensions Survey (representing employers of 9 million UK workers) shows the extent of the pensions crisis. It confirms that even those whose employers offer a pension scheme often do not bother to join it (on average 40% do not belong). Pensions are just not what most people want.
People are disillusioned with pensions: 69% say that the reason for staff not joining is a 'disillusionment with pensions'. If this is the case, then the proposed auto-enrolment could fail. In fact, the employers expect over a third will opt out anyway. I think it could be far more than that.
Pension contributions feel like a 'tax' to many people: We need to give pensions a 'new image'. At the moment, people are expected to part with their hard-earned money and place it into a pension fund which they cannot touch again until they reach their 50s. Even if employers are willing to chip in as well, many feel reluctant to lock their money away like this. In fact, the pension contribution feels to them like a tax, with the money being taken out of their pay packet. They do not feel ownership of a pension at all and cannot access their own money even if they need to.
Why only pensions - why not lifetime savings? There is a strong argument for redesigning long-term savings, to help encourage people to put more money in. Make the pension into a 'lifetime savings account', where money can be withdrawn, or perhaps have a five year fixed term, rather than for many decades.
Abolish the word 'pension' from everything other than State pension: In fact, why not abolish the word 'pension' for anything other than the money received from the State? A radical redesign of the state pension would see a flat rate payment being made to all those reaching pension age, and this would be clear, simple and properly understood. This would be the 'pension'.
More important to encourage people to start saving in the first place: Then, anyone who wants more than this, would know they have to do some savings, or keep on working. If they save, the money could go into any long-term savings vehicle, with the word 'pension' removed from the savings vocabulary. If people want to lock the money away for decades, that is their choice, but we should not force them to. The most important thing is to get them to start saving, instead of spending all their money.
Radical change of state pension - flat rate, no mass means-test: Radical change may be the only way to really revolutionise our pension system. A flat rate state pension, no mass means-testing and then self-interest dictating how much extra people will put aside for themselves.
Radical change of the pension vehicle - long-term lifetime savings: It would be far less frightening if employees were automatically enrolled into their own lifetime saving account, not just an inflexible, complicated pension. Employer contributions would then be properly valued and individuals would be more likely to save.
The Government has already proposed some of these changes - including a flat rate state pension and increased access to pensions. These changes are essential if we are to succeed in overcoming the crisis facing future retirees.
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