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Give credit where it&#39s due

Here&#39s a quick question for you. Who was quoted in the financial press last week as saying: “The research findings show that the impact of stakeholder has been felt far wider than the actual product.”?

If you guessed it was a Government minister, you would be wrong. These words were spoken by Andy Milburn, corporate promotions leader for Royal & Sun Alliance, which has just conducted a life and pension survey.

The survey makes interesting reading. Apparently, 80 per cent of people polled believe that stakeholder has prompted employers to review their total employee benefits package. A further 58 per cent think that stakeholder has increased the significance of employee benefits in the workplace.

As I have been saying for months, the success of stakeholder is not only about how many people have signed up for one. In the first six months since their launch in April, well in excess of 400,000 people have signed up to a stakeholder scheme and well over 200,000 firms have offered employees access to a scheme through the workplace.

But, as the results of the survey show, the ripple effects from the launch of stakeholder have had a positive effect on general pension provision. Looking at the bigger picture, pension sales generally are up by 55 per cent compared with this time last year, so the message that people should save for their retirement is starting to get through.

The next step is to convince the public that it pays to save for their retirement, which is where our proposals for the pension credit come in.

Before the advent of the pension credit, many pensioners will have found themselves in a bit of a Catch-22 situation when it comes to putting aside money for their retirement. On the one hand, they have been told repeatedly to save for their old age but then they have effectively been punished for doing so as every pound they have put away has been deducted from their benefits.

Unsurprisingly, this has led to a situation where many people have been saying it makes better sense to spend your money today and let the state take care of you in your old age.

As financial advisers, you see people in your offices every day who want to know exactly why they should be thinking about taking out a pension and how it will benefit them. I know from conversations I have had with people in the industry that there has been some concern that measures to help today&#39s pensioners out of poverty might be undermining the incentive for future pensioners to save.

Well, the pension credit will change this. It will make sure that it always pays to save and that the people who have done so will be better off than if they had just relied on the state.

How will the pension credit work? First, it will guarantee every pensioner an income of £100 for single people or £154 for couples. It will do this by giving pensioners a cash addition of 60p for pound of income they have above the level of the basic state pension up to a maximum of £13.80 week or £18.60 for couples.

It will abolish the weekly means test that many pensioners have found intrusive and in most cases replace it with an assessment every five years. It will also abolish the rules excluding pensioners with £12,000 or more of savings from getting help.

Altogether, we estimate that around half of all the country&#39s pensioners – 5.3 million people – stand to gain from the introduction of the pension credit. On average, each of these pensioners will gain to the tune of around £400 a year.

I have also heard concerns about the pension credit&#39s taper effectively acting as a tax. Well, that is just plain wrong. Taxes are collected, not given away to the tune of £2bn a year. If the pension credit is a tax, then I am a Conservative front-bencher.

Sustainability has also been one of big discussion points about the pension credit and I have had lots of people asking me how it will work in the long term.I cannot forecast what will happen 50 years in to the future because nobody can.

However, in all the talk about pensions being a long-term business, it can sometimes be forgotten that some pension policies also have to deal with what is happening in the world in the here and now.

The pension credit has been designed with an eye on the future, to help provide an incentive for today&#39s workers to save for their retirement. But it is also a policy that has been specifically designed to overcome the problems facing today&#39s pensioners.

Pension strategies are always about finding the right balance between the present and the future. The pension credit is no different.

I started with a quote, so let me leave you with one. “The National Council of Women approves of the aims expressed [by the pension credit] – to improve the position of the poorest pensioners, to encourage saving, to stop penalising those with small savings and to simplify the system.” So there you have it. I could not have put it better myself.


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