PENSION.
The very word strikes fear into many of us and for good reason. The UK pensions industry is in dire need of a shake-up. Next month the Government commences the roll-out of auto-enrollment, which will ultimately see up to 10 million workers registered in occupational schemes for the first time. But the industry has such a bad name that it has been estimated that up to a third of those auto-enrolled will drop out.
As The Herald reports today, Dr Ros Altmann, director-general of Saga, is calling for a revolution in pensions, doing away with the impenetrable jargon that scares people off and making the whole concept more flexible. She even suggests that savers should be able to take out some of their savings if they run into financial problems, rather than face the stark choice between locking cash away until retirement or not having a pension at all. Would such flexibility offer too much temptation to the weak and the desperate?
There is no doubt that just now pensions are a hard sell. As Dr Altmann observes, the two words most often associated with them are "scandal" and "disappointment". There is a long and dishonourable history of rogue employers like press baron Robert Maxwell filching from occupational pension schemes and pension industry fat cats living it up on exorbitant commission and charges. Recent news about pensions has been poor. The government's quantitative easing programme has clobbered gilt yields, used to calculate annuities. The result is a disincentive to save towards retirement. What is worse, the complexity of these products baffles people and every attempt at reform merely adds another layer of complication. Add to that the most Byzantine state retirement pension on the planet, and it is little wonder that individuals without the benefit of an accountancy degree find it hard to work out how much they need to save to enjoy a reasonable standard of living in their later years. Given lengthening life expectancy and high care home costs, generally, the answer seems to be: "More than you think."
Dr Altmann suggests the pensions industry needs to put more effort into marketing and should even consider changing the name to something like "lifetime savings". Sadly, for many in the UK today, where the gap between rich and poor is widening faster than anywhere in Europe, many households are simply not earning enough to save for retirement as well as paying their food and fuel bills. Pensions still offer many advantages but a better understanding of the benefits of a pension and even a new name will make precious little difference for those with nothing left to save at the end of the month.
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