FOOL'S EYE VIEW
Wot, No Pension?

By Jane Mack (TMFJane)
October 2, 2001

Did you know that more than 13 million adults of working age in the UK have absolutely no pension provision whatsoever? It's a shocking statistic when you think that the weekly State Pension is barely enough to buy a London-Penzance train ticket let alone allow you to enjoy a cup of coffee on the journey!

The latest research from Mintel reveals that most of those who don't have any pension provision are either under 25 years old or else in the group that pundits like to describe as "lower socio-economic".

I suppose it's understandable that, when you're under 25, retirement must seem so far away as to be almost irrelevant. But we all know that the sooner you start saving for your retirement, the more money you're likely to have by the time you pick up your final P45.

The lower paid and non-working group are facing a more serious problem because usually they simply can't afford to pay into a pension. Earlier this year, the Government introduced the new Stakeholder Pension – a low-cost pension plan which was designed to encourage the lower-paid to save for their retirement. They even changed the rules to allow non-working people to contribute.

This was a crucial alteration for women in particular, who are 40% more likely than men to have made no pension provision at all as well as being twice as likely to be dependent on a spouse. Despite years of equal pay legislation, the average net income of a woman is still about £100 a week less than that of a man, whilst women's average disposable income is half that of men. And, of course, there are those who stay at home to bring up the children and don't earn at all. The new changes mean that anyone can contribute to your pension scheme on your behalf.

Unfortunately, Mintel is forecasting that only about 5% of people are likely to take up the new Stakeholder plan, which is a shame because it's a very cheap and simple way of saving for one's old age.

Although the Motley Fool has never been keen on the fact that people are forced to buy an annuity with their pension fund, it's as well to remember that you will get tax relief on pension contributions, which will be an advantage if you end up in a lower tax bracket when you've retired. It's particularly beneficial if you're not a taxpayer when paying into the scheme because you will effictively be receiving free money from the Government in the form of tax relief.

If you're working and you put some money in to a pension plan, the Government chips in the tax that you would have paid on that money. With the standard tax rate currently at 22%, this means that the government pays an additional £28 into your pension fund for every £100 that you pay into it. Higher rate tax payers get 40% tax relief. And, if you're not working, but have a spouse, a granny or a dog who can afford to chip in some money for you, it'll be you who will benefit from the tax relief.

It might mean you'll be able to afford not only a Saver Return from London to Penzance (£62.70) and a cup of coffee, but one of those lovely stale sandwiches as well!

For more information about pensions, see here.

More: Pensions discussion board