The Government policy on contracting in and contracting out is full of contradictions. On the one hand, the Pensions Green Paper is seeking actively to encourage self-employed people to contract into the state second pension. This suggests a move towards state provision.
This sits uneasily alongside contracting out, which has helped many people get the private savings habit. Contracting-out rebates are now so low that IFAs find it difficult to say if clients should be in or out.
Money Marketing isn't about to tell the Government what level state benefits should be nor what proportion of retirement benefits should be state or private although a sustainable pension system needs both. Both rely on confidence, something that is in short supply. On the private side, the stockmarket continues its progress south. On the state side, the latest horror story about state payouts of 1p a week as married women chose to pay lower NICs for the last 30 years demonstrates how expectations often outstrip the reality of state provision.
No wonder many people rely on their property or, in the case of the self-employed, their businesses to sustain their retirement, often without a full appreciation of what sacrifices this may mean in future.
The challenges to restoring confidence are enormous. But one step is to establish a clear boundary between state and private provision. The Government may be going cool on contracting out and have decided that some contributions into a state pension from the self-employed are better than none to anything. But it should be aware that in doing so it shuts down another incentive to private saving. Whatever it does before the Green Paper becomes legislation, it needs to make its policy clear.