View more on these topics

Let’s Bee avenue

There are other pension routes apart from the Government’s stark choice

I don’t know if you know already but I have been engaged in something called the “battle of the blogs” with James Purnell, our current pensions minister.

Our main exchanges have been about my view that the “reward” of losing 40 per cent of your pension savings in return for getting means-tested benefits in retirement effectively amounts to a tax on saving.

The minister agrees that the money disappears but disagrees it is a tax. My view is that if a pound saved in a pension is only potentially to be worth 60p to millions of people, then the national pension savings scheme is doomed before it starts. In the Government’s considered view, we only have two avenues if we want to ensure that a pound saved in a pension is worth a pound:

We could provide everyone with “a universal pension” of something like 114 a week but that would come at an unacceptable cost.

Or – we could be fair to savers, but only by condemning millions of existing pensioners to a lifetime of poverty.

So, in a nutshell, if we want to continue being fair to poorer pensioners, we will have to put up with a system that penalises people with modest levels of pension savings. The only alternative would be to be overly generous to wealthier people at the same time. The minister was adamant that we could not end up with a system with “the richest receiving the same as the poorest.” So a universal pension approach is not on the cards.

But what if there were other avenues that have not been explored?

Things could easily be arranged so that people with no other financial assets than modest pension savings could benefit from their pension pots being “invisible” to the calculation of the means-test, whereas the savings credit with its imputed annual return of 10 per cent income from capital would act against the vast majority of better-off people effectively obtaining “invisibility” for their pension savings too, particularly as so many of them will have entitlement to pension commencement lump sums from occupational and personal pension schemes.

That would allow the Government to carry on with its means-testing policies if that is what it wants to do while at the same time properly rewarding pension savers without running the risk of being overly generous to the better-off.

It would mean making some changes to the current system of state pension credit but not substantial ones. Steps might also need to be taken to ensure that pension lump sums still count against people obtaining means-tested handouts even if such sums are not taken but are paid as pensions instead, or if taken as cash are disposed of before retirement.

Such creative thinking with the way that means-testing is applied is not beyond the Government. Indeed, it is not far from the approach floated by DWP officials in response to the recent trend among employers of buying-out people’s pension rights in occupational pension schemes. The DWP is apparently considering counting the value of the discarded pensions when assessing people for means-tested support in retirement.

There would be a cost to the Government in all of this. It would no longer be able to benefit from the withdrawal of 40 per cent of modest savers’ pension savings, the sum that the minister and I cannot agree is akin to a tax.

But my understanding from our exchanges is that the Government is only doing this because it has to as it is so concerned that it could otherwise end up extending such generosity and end up with “the richest receiving the same as the poorest.”

If there are other avenues that we could usefully explore, such as the one that I have outlined here, then perhaps there is a better outcome available to us than the crazy choice between unacceptable cost to us all or unacceptable meanness to poorer pensioners.

Steve Bee is head of pensions strategy at Scottish Life


Questions posed about Poso popularity

Instant mortgage offers will not take off for years because major banks will struggle to find investors if they try to sell on these books of business, says Mortgages PLC. At MM Live. Mortgages PLC head of corporate development Paul Fryers claimed that estimates from the likes of GMAC that up to 50 per cent […]

MBSL looking to poach Classic ARs

Mortgage Broking Services is planning to poach up to 30 of Classic Network Solutions’ 64 appointed representatives.The subsidiary of Manchester Building Society, which had what it describes as a “substantial” bid to buy Classic rejected two weeks ago, is now looking to add to its 99-strong AR base.MBSL managing director Tony Corrigan, who quit from […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm