FOOL'S EYE VIEW
The Great Pensions Swindle

By Jane Mack (TMFJane)
December 19, 2002

Yet again I feel as if I've been conned. This comes as no surprise to me – I'm the gullible type in spite of my best efforts to try and suss out what's going on before it happens. The only difference these days is that I get annoyed enough to do something about it when it finally dawns on me.

When I first started working more than 20 years ago, the state pension was index-linked and I was allowed to claim it at the age of 60. This is no longer the case because the various governments that we've had over the past two decades moved the goalposts when I wasn't looking.

On Tuesday, the current government shifted them again but this time I was watching.

Just in case you missed all the palaver, they announced what they described as the biggest shake-up to pensions in years. This was in the Pensions Green Paper, a consultation document that precedes any actual legislation by around one to two years, depending on how many expensive committees are required and so on. The main proposals include:

• Raising the age at which you can start claiming a personal or occupational pension from 50 to 55 (hidden in the small print I might add).
• Plans to give people who put off claiming their state pension until they're 70 a 50% increase in weekly payments - or a £20,000 lump sum.
• An end to compulsory retirement ages.
• A simplification of the existing eight different tax structures surrounding pensions introducing one overall lifetime limit on contributions.
• Giving people more personalised information about their own pension situation.
• Making it easier for employers to set up and run occupational schemes.
• Letting people continue working for the company from which they are drawing a pension.

The document stopped short of measures to help stem the decline in company pension schemes and compelling people to contribute to their own pensions. The Secretary of State for the Department of Work and Pensions, Andrew Smith, told the House of Commons: "We are determined to help more people carry on working until they are 65 and even beyond".

The Government reckons that at least three million people are facing poverty in their old age and that up to ten million more are looking at a huge drop in living standards when they retire. It's because we're not saving enough but their solution to the problem is to suggest that we put off our retirement.

The trouble is of course is that we don't want to. Most people I know can't wait to get off the treadmill. In fact, a couple of months ago we even ran a poll on this very subject and only 8% of people wanted to work beyond 65. More than three-quarters wanted to retire before the age of 60.

Unfortunately, we're not going to be able to do that unless we save a lot more than we are now. But there were few incentives put forward in the Green Paper. Actually, perhaps the incentive to save more is the appalling thought that if we don't we really are going to have to work until we're 70!

The Association of Consulting Actuaries has come up with some indicators regarding how much of your income you should be saving. Depending on when you start, they are:

Age       % of your
            income  
25           10-15
30           12-17 
35           15-20 
40           17-24 
45           23-30 
50           32-45
55           50-70

Scary isn't it? It shows you just how much delaying any payments could cost you. Of course by the time most of us come to retire the goalposts could shift again. So it's crucial that your retirement plan is flexible and that you keep on top of its progress. Distrust of pensions has meant many people are now saving for their retirement outside of the traditional pension environment. ISAs are one of the most popular alternatives. A mix of plans with several different companies, in order to avoid the Equitable effect, also makes sense provided that it doesn't mean you pay significantly more in charges.

Perhaps the only thing you need to take away from the Green Paper is this. Your retirement is in your hands. No one, including the government, can be relied upon to bail you out. So start saving, Fool!

More: What Everybody Must Know About Pensions (a collection of recent TMF articles on pensions) | Pension Centre | ISA Centre