A couple of weeks ago, I was at Luton airport at the crack of dawn to catch a flight to Nice to speak at the Money Marketing Retirement Summit in Monaco.
In fact, I was the first speaker at that three-day event and my job was to get the summit going with a talk on the latest developments in the UK pension market. Later in the afternoon, on my way back home, I had a little time to reflect on some discussions I have had with some official pension types over the previous few hectic weeks.
The new pension reforms that had been the subject of my address at the Money Marketing gig have been on my mind for a long time now. The fact that employers will have a minimum contribution to their employees’ pensions imposed on them by law is something that many are saying will be a big financial burden on businesses, particularly smaller ones. But a 3 per cent contribution to a pension is not likely to produce much in the way of pension benefits for a workforce with ever-increasing expectations of increased longevity.
It seems to me we need to change the way we speak about pensions if we want employers and employees to appreciate the value of them and understand how much money people need to put aside during their working lives if they want to achieve a comfortable standard of living when they stop work and retire.
The Government is working on plans to increase the value of the basic state pension to £140 a week. That, of course, will be a good thing as it will lift millions of older people in the future out of the means-testing trap. But £140 a week is not an amount of pension that sets the imagination racing. But £140 a week, if you had to buy it as an annuity with your own money, would cost you a great deal, certainly an amount that most people would think of as being a considerable sum. My guess is that if you were a 65-year old today and you bowled up at a pension provider’s front door with a carrier bag full of money, it would set you back about £160,000 to buy yourself a pension guaranteed for life of £140 a week, partic-ularly if you wanted it to increase a bit as you got older.
It just so happens that the average house in the UK these days costs around £160,000 too and it seems to me that this gives us a unique opportunity to get people interested in pensions by talking about what is going on in a much more interesting way.
It would be great if the Government could announce that instead of the basic state pension, people hitting their mid-60s would all be given a free house. That would really make people sit up and think about pensions and retirement. A new twist on the “my house is my pension” mindset that so many people seem to have fallen into these days.
Steve Bee is managing partner at Paradigm Pensions