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Leading questions

It will take real leadership from politicians prepared to introduce radical solutions to incentivise retirement saving in the UK, says Informed Choice managing director Nick Bamford

A fool, it is said, knows the price of everything and the value of nothing. I mention this because I remain unconvinced that the great British public will flock to set up their personal accounts under the proposed national savings pension scheme simply because it is low cost. The public knows the difference between price and value.

A form of pseudo compulsion requiring employees to opt out rather than opt in might have some positive impact on take-up. However, the majority will probably not be turned on by this retirement plan.

I recently read reports of a survey by JP Morgan which suggested that 47 per cent of those targeted by the scheme would choose to opt out. It is hardly a glowing endorsement when nearly half of those it is aimed at have rejected it before the details are known.

Price was never going to be a cause for high take-up. Stakeholder pensions are a very good example of how easy it is to confuse price and simplicity. The Government should have learned by now what the difference is.

What we need from the Government right now is a healthy dose of leadership but this seems to me to be the problem. How can we expect leadership when it is abundantly clear that, despite claims to the contrary, there is really no consensus about the way forward for UK pensions?

It is too confusing. The typical member of the public cannot work out if they are going to be better off saving for their retirement or not.

Much of this is down to the peculiar attachment that Chancellor Gordon Brown has to means-testing. If the Government wants to give with one hand and take away with the other, is it any wonder that so many will withdraw themselves from participation?

IFAs know that for a significant proportion of the population who seek advice about retirement planning, the answer is not to bother saving. Instead, they should use what little disposable income they have to pay off their debts. Even those who are debt-free might be better advised to spend their surplus income.

It is a sorry state of affairs that we have reached this point and the finger of blame can only be pointed in one direction. It is a complete absence of leadership from politicians in general and Government in particular that has created this mess.

There is no easy way out but that is where true leadership comes in. The solution is a radical shake-up of the state pension system. The current Government believes its proposals are radical but that is simply because it has not looked up a definition of the word and really understood what it means. By radical, I mean fundamental, deep-seated, sweeping, thorough and far-reaching, not tinkering round the edges as in the current proposals.

Radical should mean the abolition of the state second pension and introduction of a non-means-tested basic state pension which delivers a living standard weekly income for all. Any savings that a person devotes towards their old age will be designed to provide them with greater choice and flexibility rather than the current ridiculous state of uncertainty.

Abolishing S2P will also mean the abolition of the highly complex contracting-out decision. Here again, the Government will squeal because if you do away with contracting out, this will result in higher costs for defined-benefit schemes. This is not such a problem in respect of the private sector but might cause confrontation in the public sector and we all know how weak the Government is when it comes to taking on the unions.

It may cost money to make such changes but I thought we were living in a highly developed economy where caring for the elderly ought to come as second nature. A simple state pension system may result in some losers as well as winners but it is the job of the Government to deal with this problem.

A simple acid test for the Government proposals is to pose the question: “Will someone saving in a personal account be better of at retirement?” If the answer is yes, the proposals may have some legs. But if the answer is no or only possibly, why are we wasting time discussing it?

The problem is that pensions are long term. This is a difficult concept for most politicians to accept as important. They are usually only in power for a few years and any mess they leave behind has to be cleared up by whoever follows.

The current review looks to me like it will create further mess. What we need now is real leadership from pension ministers. Do not hold your breath, however, as they generally do not stay as pension ministers long enough to demonstrate appropriate leadership skills.


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