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A consumer&#39s view

The Sandler and Pickering reports have been greeted with more or less universal acclaim – and rightly so. They are full of good common sense and, the sooner the basic proposals for simplification of both pensions and other savings products are implemented, the better.

But in many respects they are both trying to solve a problem that largely does not exist. A pension black hole looms and the Government is trying to persuade us all to save more towards our retirement. But if Tony Blair and Gordon Brown genuinely believe that the half of the population who have no money put aside do not save because financial products are too complicated, then they are living in cloud cuckoo land.

It is blindingly obvious that the vast majority of the 50 per cent of the population who do not save simply do not have any money. Moreover, they are by no means feckless wasters who are content to let social security and the taxpayer pick up the tab.

Even those on average earnings of around £25,000 a year find the strain of saving for the deposit on a house, paying the mortgage, bringing up children, paying for normal family outgoings such as food, holidays, travel to work, not to mention school uniforms and the like, leaves them with little or nothing to save for retirement.

The vast majority of individuals and families are responsible people, anxious to provide for themselves. But paying off a mortgage and bringing up a family takes all their resources until they are probably well into their 40s and 50s, by which time, as we all know, it is largely too late. This is not their fault and no amount of product simplification, charge caps or ease of purchase will alter this fact.

Moreover, the notion that product simplification and regulation will mean that these individuals can purchase without taking advice is foolhardy in the extreme. Even the simplest products have to be seen in the context of an individual&#39s overall finances.

How many 20-year-olds have been coerced into taking out a stakeholder pension in the past year? We do not know but the vast majority of them will need the deposit on a flat long before they need a pension.

Most will be unaware that money paid into a pension scheme cannot be drawn out except on retirement or death – a somewhat drastic way of getting at your money.

There is no easy solution

to the problem of long-term saving so long as investment returns remain low or negative and half the population has little or no disposable income. The Government is to a large extent to blame. The poorest half of the population contribute only 12 per cent of the total income tax take and could be released totally from taxation at very little cost – certainly, considerably less than the estimated £15bn a year cost of the new child tax credits.

As accountants were moved to observe when Gordon Brown introduced the new benefit, why not just let people keep more of their money? What is the point in taking tax from poverty-stricken individuals with incomes of £10,000 a year or less (as the Government does) only to hand it back, at vast administrative expense, in the form of benefit?

In addition, the new child tax credit is not exactly a vote winner. It must be making the 10 million pensioners furious. Why do families with incomes up to £58,000 a year need help from the social security system? There are many more deserving cases.

The answer to pension saving, as Pickering and others have long pointed out, is compulsion. The Government pretends that it does not want to introduce compulsion because it would be seen as taxation. The real reason is that compulsion would be inflationary and in a recession it would push many companies into bankruptcies, as final-salary schemes are already threatening to do. But employers could be excluded from compulsion initially.

If employees were obliged to contribute say, 3 or 5 per cent of salary to a pension scheme, it is true they would demand an instant 3 or 5 per cent pay rise to compensate, on top of what they might already have negotiated. But it would only be for one year.

Which is worse – one year of inflation or a lifetime of crippling taxation for young people forced to pay for the older generation&#39s social security benefits?

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