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Steve Bee: Why we need an extra pension system

The problem with the pension system in this country is that our labyrinthine piles upon piles of bewilderingly complex rules and regulations are in place, by and large, to stop a tiny number of people from saving too much money.

But the vast majority of the population save far too little for the future. This problem is not addressed adequately by our legislation.

It would be nice if our pensions legislation could be simplified to a level all people could understand, but I fear that is not a realistic option. After all, the government attempted to do it in 2006 with its so-called pension simplification reforms in the form of A-Day, which only resulted in a far more complex system than previously.

Many say that financial education in schools is the way forward, particularly with pensions, but I do not agree. There seems little to be gained from introducing millions of impressionable students to the pointlessness of our ability to deliver a sensible framework for people to set money aside for the future.

Steve Bee: Employers tied in knots by red tape on pensions

If people really understood the ins and outs of our pension legislation, it would likely put them off the idea of investing their lifetime savings in it. The fact the whole system has been, is and will always be subject to constant change would raise red flags to anyone looking for a stable savings environment.

Understanding the interactions of private pension savings and the state pension system, and the constant uncertainties that come with it, would probably need a degree-level course and only be suitable for the seriously committed among us.

If trying to simplify things does not work and education cannot work, what hope is there?

Such degree courses would provide lecturing opportunities for many of the Women Against State Pension Inequality members with first-hand experience of the vagaries of change. But that would be the only benefit.

So, if trying to simplify things does not work and education cannot work, what hope is there?

Andrew Tully: Planning strategies to beat the lifetime allowance

I think there is hope but we must start considering radical options. More of the same old, same old will simply take us deeper into the twin forests of bamboozlement and despair.

My solution to all of this is a simple one: we need two pension systems rather than one.

One of those systems should be the one we currently have and all those involved in framing its rules and regulations should be encouraged to carry on as before, keeping up the deluge of change, tweaks and u-turns. That system should be freely available to all who want to use it.

For everybody that does not want to use it, a second system should be established. A system guaranteed not to change for decades, with simple contribution rules that anyone can understand and which does not interact with the state pension at all. An exempt-exempt-taxed-based Isa would do the trick.

With two such systems, I would wager that one of them would simply fall into disuse over time.

Steve Bee is director at Jargonfree Benefits

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Agreed, but Michael Johnson has been advocating this approach for years and, even with the CPS`s inside track to the Treasury, has not made significant headway. A cynic might suggest that the mouths of Health and Defence might not be fed if the opiate of pension meddling by the Treasury is withdrawn completely.

  2. ‘But the vast majority of the population save far too little for the future.’

    The Uk has about the lowest level of personal savings (from income) just about anywhere in the developed world at less than 5% (Germans 16%, Chinese 35%)

    How do we are achieve higher savings/pension savings when a quarter of the working population earn less than living wage and 49% of the growing numbers of self employed are classified by the ONS as low paid

    Pay needs to increase, and the cost of rents/houses/mortgages needs to fall substantially to enable people to save more.

  3. Terry Mullender 27th June 2018 at 11:04 am

    The answer is incredibly simple. Compulsory employer and employee pension contributions made from day one of employment based on an employees full annual salary with no employee opt outs allowed. Income tax and NI contributions are compulsory. So should pension contributions.

  4. With respect Steve you are looking in the wrong direction.

    For 30 years pensions have been a football. The tinkering is never ending with the result that many have lost faith.

    The solution is constantly being avoided and really isn’t difficult. What we require is a decent State Pension funded by (ring fenced) taxation. AE now imposes what is in effect a tax of 11% (from next April). So if we rounded up to say 12% that should be more than sufficient tax to fund a half way decent pension – with the re-introduction of SERPS. As it is we have the worst State Pension in the developed world. (Even below Mexico!)The average worker across the OECD can expect 63% of their salary as a state funded pension. (OECD figures).

    Will it ever happen? Doubtful. There are too many vested interests in ensuring we have a vibrant private pension industry.

  5. The real problem is that pensions need very long term planning and politicians of all persuasions only look to the next election or if very lucky, two ahead.

    This pervades every part of our financial future where short term income / fixes are all and more importantly you don’t want to make things better for 10 years time as you won’t be in power and the others will benefit from your careful planning (Politicians in power know voters won’t remember they did it or give any credit).

    An example is the “Growth” in pension tax relief which government would like to target. The majority of this “Growth” is due to auto enrolment and DB schemes trying to address deficits not in the main because of rich people paying in more (as most very rich have allowances of £10kpa going forward) If this was because of an urge to spread tax relief more equitably then fine. However, if targeted by the treasury in the next few years it will be to reduce the treasury payout. We can also look to Gordon Brown and his effective taxation of pension funds for short term cash which is behind the beginning of the end for DB schemes.

    With regard to “ring fencing”, when this is applied to taxation it is never going to work as no government is bound by a previous government’s commitments. Due to this either someone will decide today’s expediency means yesterday’s ring fencing must be dropped (no doubt at the time it will be sold to us as “for a short period”)or it will be nibbled away at as other cries for money take precedence.

    What’s the solution?, a difficult one but a combination of the certainty of a reasonable level of state provided solution plus some of your provision on top seems best. Hang about wasn’t that what was originally planned (State Pension, SERPs plus DC and DB Schemes).

  6. Trevor Harrington 29th June 2018 at 4:37 pm

    Successive Governments have overspent huge imaginary tax revenues, which they did not possess, on their own pet political projects.

    This is particularly true of the previous Labour Government who, without exaggeration, went berserk with Public spending, and in addition they foisted myriad additional benefits on occupational pension schemes, without a single solitary clue on where the money was coming from in order to pay for it.

    Private Pension funds, previously held as sacrosanct from Treasure raids, were taxed in the first two months of the Blair/Brown Labour administration in July 1997, and the money was used for all sorts of socialist ideology and electoral issues – mostly it went in increased public sector salaries.

    Successive pension plans, including the Basic State old Age Pension, SERPS, and Graduated Pensions, as well as private pensions and company pensions have been destroyed by Governments spending the money on “other things”, in pursuit of perpetual political power.

    Now explain to me why anybody would want to spend a working lifetime funding a pension system, of any nature, with hundreds and thousands of pounds of their hard earnt, overtaxed incomes, just so that a future Government of some slightly different political persuasion can steal it, a few short years before you see any personal benefit whatsoever?

    If we are to restore the public image of pension planning, and we really must do so at some stage over the next decade or so, then the very first step must be to restore the state pension to a decent living wage, and a common retirement age, which is not lost in the downright lies and deceit of the current delusion of extended lifetime longevity (some are living longer, but many are dying younger, through substance abuse obesity and poor diet).

    We need to look very closely at where the money which has been pillaged from al of our pensions, has been spent, and that will mean a very close examination of public sector pensions based on the ridiculously high salaries of upper management (of which there are far too many such people), and also the fraudulent early retirements based on “prospective service”, of the same people in Public Sector upper management.

    I will give you one example of many hundreds that I am personally aware of, which means many hundreds of thousands across the Country.

    How about the GP on £75,000 per year, who was looking forward to his 40/80ths pension (£35,000 / £40,000pa – very nice), who discovered that he could feed his GP Partnership profits of £200,000 pa back into his NHS pension for a few years prior to retirement, and then claim his NHS pension at just over £100,000 per year – index lined – for life?

    He now lives half his life in New Zealand and half in Derbyshire … Nice!!!

    We must sort the existing Basic State pension out before we contemplate any more new pensions systems, no doubt based on addition contributions (like the one that Steve Bee is referring to in his article above), bearing in mind that we are still paying for the existing benefits, which have actually been stolen !

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