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Another turn of the screw

The past 15 years have seen a succession
of Government or Government-sponsored measures which have resulted in
pensions being steadily kicked to death. The public do not like them
due to the annuity trap and lack of inheritability of unspent funds,
an increasing proportion of the financial services industry dislike
them as more trouble and risk than they are ever worth and employers
no longer like them and are closing final-salary schemes left, right
and centre.

Yet now we hear the Government wittering on about a 27bn
savings gap, somehow magically inflated in the space of a few short
months to 57bn.

As a completely inadequate sop to the industry, the Government
grudgingly concedes that a large part of the problem is the 1 per
cent cap to annual management charges. “Very well,” says the
Government. “You can increase the cap to a still largely inadequate
1.5 per cent.”

“Not really good enough,” says the industry.

“Tough,” says the Government. “You are all overpaid for what you
do and we think commission is a rip-off. Oh yes, you can only have
1.5 per cent on new contracts. All those you foolishly sold at 1 per
cent will have to stay that way for ever.”

“Oh well, stuff you,” says the industry. “There is no money any
more in attempting to review existing pension policies, including all
the millions of them sold in the 1990s on the basis of full
commission in return for full advice but since then unilaterally
stakeholdered by the likes of Norwich Union, Standard Life and
Friends Provident. The Government screws us, the providers screw us,
the regulator screws us and you think that raising the charge cap to
1.5 per cent is going to switch us back on to pensions? Dream on,
buster.”

As for contracting out of the earnings-related tier of the state
pension scheme, sooner or later nearly everyone will contract back in
because this Government has whittled away the available rebates to
such completely inadequate levels. The life and pension industry is
run by actuaries and fund managers, not alchemists. Did the Treasury
really think that no one would be looking? But it is now widely
accepted that, as a long-term proposition, the UK’s earnings-related
state pension scheme has become completely unviable and the situation
from here is only going to deteriorate.

There can be only one destination on the horizon and that is means’
testing. We already have it for the pension credit and in New Zealand
they already have it even for the basic state pension.

Why carry on paying full-rate National Insurance contributions to
secure something that is likely to be means-tested out of reach when
you get to retirement? I no longer even try to advise my clients on
this subject on the basis of illustrations. The bottom-line question
is whether or not they consider they will qualify for anything from
the state second pension, even if they revert to contributing fully
to it. Were I employed, I would contract out and stay that way for
good.

Is this Government serious and genuine about restoring confidence in
long-term savings for retirement? I really do not believe it is. Its
arrogance and incompetence beggar belief. And complacency, of course,
with those juicy civil service pensions to look forward to.

Julian StevensWDS, Bristol

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