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Govt aims torpedo at its own pension flagship

The Government has been accused of shaping up for an own goal with its

plans to raise the minimum retirement age from 50 to 55.

The industry claims the proposals could backfire and scupper the launch of

the Government&#39s flagship stakeholder pension, which is seen as central to

its reform of the pension market.

Experts believe that by meddling with retirement ages, the Government

risks pushing many people away from pension planning towards other more

flexible and accessible forms of savings, such as building society accounts

or Isas.

Such is the extent of concern among pension providers over the proposals

that some fear they could strangle stakeholder pensions at birth.

Clerical Medical pensions strategy manager Nigel Stammers says: “The move

could be a real own goal by the Government against stakeholder. It could be

seen as saying to people that if you want to retire early, then pensions

are not good for you.”

The controversy surrounds the Government&#39s plans to shift the age at which

people can take pension benefits from 50 to 55. The move follows an

influential report by Government think-tank, the Down- ing Street

performance and innovation unit.

But the pension industry fears such a move would discourage an already

reluctant public from saving for retirement. This flies in the face of the

Government&#39s stated objective of getting the great unpensioned of nearly

five million employees to save for retirement to relieve the looming crisis

on state pension funding in the coming decades.

Scottish Life communications manager Alasdair Buchanan fails to see the

logic behind the proposals. He believes such a move could have a

detrimental effect on people investing for their retirement as it further

restricts when they can reap the benefits of all the years spent saving.

Pension providers are concerned that people will dec- ide to look for more

flexible savings vehicles from which they can get ready access to their

cash instead of waiting an additional five years.

They argue that increasing the retirement age will become a further

deterrent for anybody who has cherished the dream of retiring early.

Pensions are already perceived as very restrictive.

Although pension providers admit that the actual number of those retiring

at 50 is very low, they believe the impact cannot be underestimated in

terms of public perception of the added restrictions to taking their

pension pot.

The proposals have also reopened the debate over whether pensions are the

most suitable form of retirement planning for many investors. This argument

is further fuelled by the requirement for retirees to purchase an annuity

with their fund eventually.

Alternative forms of savings such as Isas provide investors with greater

flexibility over what to do with their money.

Stammers says: “If the Government goes ahead and makes the public wait to

retire at 55, I would not be encouraged to invest in a pension if I was a

20-year-old. I would probably steer away from pensions to Isas for the

added flexibility.”

Pension contributions get tax relief when they are made but a pension

annuity is subject to income tax whereas the benefits from an Isa are

tax-free and can be invested freely.

Investment IFA Wilcox Young managing director Bob Young says: “If we have

a less flexible pension regime whereby you cannot get your money out until

later, it will force people into considering making use of Isas and

investment portfolios to fund for their retirement.”

Pension providers are also concerned the move will send out the wrong

message to people over the future stability of their pension planning,

suggesting that the Government could alter legislation on a whim to throw

years of careful planning out the window.

Scottish Equitable pensions development manager Steve Cameron says: “I

think if the Government reduces the flexibility on pensions by increasing

the retirement ages, it will send out the wrong message to the public.

Irrespective of the details, the fact is that reduced flexibility sends the

wrong signals for future planning.”

Buchanan believes the move could have a psychological impact on the

market. He believes if the Government changes things when it wants, public

perception will be of a further shifting of goalposts, resulting in a

reluctance to make pension arrangements.

Whether the effect of raising the retirement age will put people off

saving in a stakeholder remains to be seen. But further Government meddling

with pensions just as it is to embark on one of its biggest campaigns to

encourage people to make provision for retirement must send out the wrong


The top 10 unit trusts continue to be dominated by technology and smaller

company funds. The Artemis UK smaller companies fund holds on to the top

spot with a one-year return of 164.74 per cent, ahead of its nearest

competitor CF Bio-tech which has a return of 141.91 per cent over the last


Invesco GT Japanese smaller companies moves back into the top 10,

replacing Framlington health which sat in 10th place for the past two

weeks. Henderson global technology is the highest climber, up from ninth to

fourth, with a return of 135.68 per cent over one year.


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