I read the other day that the Department of Work & Pensions is to release its requirement for money-purchase providers to give policyholders a meaningful illustration of their future pension entitlement.
It will replace the current PIA-based projections…with a single growth projection of 7 per cent eroded by 2.5 per cent inflation.
If we reduce the remaining 4.5 per cent by another 1.5 per cent in respect of charges and point out to the scheme member just what the options at retirement will be for three-quarters of his accumulated fund, I think we can predict with a fair degree of confidence that most people will either put their money in a building society, under the mattress, blow it or buy a second property. Anything but a pension.
Already, some of my clients are saying exactly that. The only reason they bother to participate in their employer's retirement benefits scheme is because of a decent employer contribution.
Before Alastair Darling and his supporters start leaping up and down and claiming this to be a victory for those in favour of compulsion, it is important to emphasise that these people do not actually have any faith in their employer's pension scheme. They are making other arrangements of their own to ensure financial comfort in retirement.
The only basis on which they participate in their employer's pension scheme is that they may as well and that the eventual benefits when they retire may provide a bit of extra income as well as a tax-free lump sum, most of which will have been funded by their employer's contributions.
That is not the same as believing their employer's pension scheme to be a good thing and anyone who tries to argue so is, very probably, a politician. Meanwhile, the mess grows both thicker and deeper.
WDS Independent Financial Advisers, Bristol