FOOL'S EYE VIEW
How To Make Pensions Sexy

By Jane Mack (TMFJane)
September 16, 2004

Imagine yourself in a situation where a holiday, a trip to the cinema or theatre or even just a simple meal out is out of the question and always will be. And then put yourself in the shoes of half the country's pensioners - because that's where you could be too.

With a basic state pension system that amounts to less than £80 a week, it's rather hard to pay the usual household bills let alone finance an evening out. The amount of basic state pension you receive when you reach the official retirement age depends on the number of years you have paid National Insurance Contributions (NICs), or have been treated as paying NICs. (Allowances are made for periods spent bringing up young children or for studies but the rest is up to what you personally contribute).

You have to work and pay NICs for most of your adult life in order to qualify for the full amount of the basic state pension. If you have a taxable job, and you pay your NICs throughout what the Government deems to be a full working life (44 years for men, 39 years for women at the moment), then you will get the full state pension – currently £79.60 a week for a single person.

Even the Government realises this isn't enough so it's topped up via a means-tested pension credit to what they consider to be a basic liveable income of £105 a week.

Around five million pensioners are entitled to have their income topped up by the pension credit - except that around two million of them aren't claiming it because they either don't know they can get it or the paperwork is too daunting to tackle. And, besides, pensioners are a proud bunch and many don't like admitting they're living below the poverty line.

According to the Pensions Policy Institute (PPI), it costs 10 times more to administer the pensions credit than it does to deal with the state pension itself and they say it would be far simpler to pay a basic state pension of £105 a week in the first place.

The PPI argues that such a system would target the poorest pensioners without anyone losing out and without additional pension being given to the richest pensioners. Three cheers for an organisation that speaks sense!

Naturally the Department for Work and Pensions doesn't like the idea claiming that to introduce such a scheme would mean there would certainly be losers. To my mind the only losers would be the army of civil servants who spend their days working out who's entitled to pensions credit at a cost of nearly £400 million a year!

A higher state pension and an end to means-testing isn't too much to ask for after a lifetime's work, is it? According to Help the Aged, 20% of the older population are living below the poverty line and while younger people might occasionally face poverty they at least have the option of working their way out of it. An 80-year old would not. And being able to survive at subsistence level is not really what Sir William Beveridge had in mind when he introduced basic state pensions more than 60 years ago.

I lied in today's headline when I implied there was a way to make pensions sexy. It's surely impossible. But someone somewhere needs to find a way of making them so in order to make people take more notice of the need to save for the future.

The fact is, even if you've still got plenty of time to go before you retire, now is the time to start saving for your old age. 'Now' is always a good time to save. If you don't, you will be very very poor and there is nothing sexy at all about being poor.

Falling equity markets, declining annuity rates mis-selling scandals and the closure of final salary pension schemes have put people off pensions. It's understandable, but you still need to make some sort of provision for your retirement. Otherwise, you're going to get a shock when you find yourself struggling on the meagre state pension – if it still exists by the time you retire!

Learn more about Pensions, ISAs and Savings and How To Sort Out Your Pension