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Independent view – Tom Warwick

The general election is over and soon the daily ritual of clearing a path through the numerous election publicat- ions which seem to fall through the letterbox every time you are not looking will seem like a dim and distant memory.

For those of us providing advice in the retirement planning market, the lack of focus on the issues surrounding future pension provision was of concern. All three major parties quite rightly put forward ideas to tackle the immediate concerns of today’s pensioners but we all know that the financial plight of pensioners is going to become a bigger issue as time moves on unless serious action is taken soon.

Labour put forward the work of Adair Turner and the Pensions Commission, who are due to make their final report later this year, as the reason for not focusing on the problem at this general election.

We already know from comments made by Turner that there are four main options:

l Let pensioners get poorer.

l Increase taxes.

l Extend the retirement age.

l Increase the amount that people save for retirement.

One would assume that letting pensioners become poorer is not an option anyone would support. It is likely that the commission will recommend a combination of several changes. We will have to wait and see what they are and, more to the point, whether these are taken on board and movement is made towards implementation.

All possible solutions will require some reconsideration of previously held beliefs. Increasing the retirement age may have sound logic. Equalisation of state retirement ages for men and women appears to have passed without a great deal of fuss although this may well be due to a lack of awareness rather than acceptance.

Recent dialogue concerning the local government pension schemes may provide a more realistic indication of the reactions that any move to increase the retirement age could invoke.

Similarly, while the idea of increasing the amount that people save for retirement sounds attractive, this too could be problematic. Certainly, compulsion could create financial difficulties for both employees and employers. To make compulsion work would necessitate the introduction of a reasonable level of contributions. It could also be perceived as a stealth tax and be greeted by a negative reaction akin to that which followed the increase to National Insurance contributions.

Solving the problem will mean that we have to take some painful steps. It would be good if some imaginative thinking was also used. For what it is worth, I have a couple of seeds of ideas which would not solve the problem but may help in part.

Child trust vouchers are intended for investment until a child reaches 18. Could not a similar scheme be introduced with a longer-term aim such as retirement? Not the most exciting gift a child will ever receive, I accept, and I know that private pension provision for children is already available via stakeholder pensions. However, the use of Government-issued vouchers could widen the market and encourage greater interest in pensions.

The second idea is based on the problem of student debt, which I believe can be as high as 20,000 on graduation. Repaying these loans reduces the amount of income available to graduates for retirement planning. What if, instead of all the repayments being used to reduce the debt, the Government diverted some of the repayments into a private pension? The trade-off could be that during this period the graduate was, in effect, contracted out of the state second pension but rebates were being paid directly by them through loan repayments.

These ideas may be fundamentally flawed or may have already failed a focus group.

To be a success, any changes which are introduced will need to be the result of broad cross-party consensus. Different parties may have different ideas on the route they would take but the destination is the same. Realism must be shown by all and it is to be hoped that such an important issue will not be the subject of cheap political point-scoring.

Tom Warwick is a consultant at Warwick Butchart Associates


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