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Paul Farrow: People are giving up on pensions

I have often wondered whether the Treasury select committee’s bark is worse than its bite. Former chairman and Labour MP John McFall (now Lord McFall) was always very vocal but Robert Reid’s’ comments in his blog, iPensions, please, struck a chord with me.

Reid suggests that at a recent Money Marketing event, McFall ducked and dived on all questions pensions and I am not surprised. During Lord McFall’s party’s time in office, it did little to help people manage their debt or encourage them to save. Labour’s list of failures was endless, from stakeholders to Isas to the banking sector. The pension timebomb has got worse – stakeholder pensions failed and their successors, personal accounts, aka Nest, was delayed and delayed.

It would not be wrong to say that a generation of workers missed the pension boat thanks to the lack of interest and urgency shown by the previous Government – a fact borne out by there being more than 20 ministers in charge of pensions in some shape or form during its tenure. Needless to say, pension apathy is still rife. A new report by Aegon shows that only 15 per cent of people are confident they will have saved enough by the time they reach retirement.

The Institute of Directors recently proclaimed that pensions were too complex and failing savers. It said this was why its report showed that more people were investing in Isas than pensions. The IoD reported the latest figures from the Office for National Statistics showed Britons put £22.9bn into pensions, such as a company scheme or a personal pension, in 2009 – a fall on £24.9bn in 2008 and £25.6bn in 2007.

By comparison, they put £44bn into Isas during the 2009/10 tax year, according to HMRC. This figure rose by £10bn to £53.9bn last year.

But dig deeper and there a more worrying statistic emerges. Savers are not investing in equity Isas in preference to a pension. Not in the slightest. They are investing in cash Isas.

The ONS figures show that of the £53.9bn invested in Isas, £38bn went straight into cash. History tells us that over time, cash is the worst asset to be in, given the eroding effects of inflation and over time the asset that delivers the best returns is shares.

Unfortunately, recent years have seen trust and confidence in the pension industry plummet to new depths. High fees and poor returns have turned many people off pensions, so the Institute of Directors is right in one respect – pensions are failing the British public.

But I doubt very much that consumers are turning to Isas to build a pension instead. I suggest it shows that the public has given up on the idea of having a pension altogether.

Who or what can rescue the situation? The critics seem hell-bent on making auto-enrolment a failure and Nest’s task looks a forlorn one already. And, although thought-provoking, I doubt that Reid’s vision of an iPension will do the trick either.

Pensions, as I said in my previous column, have a similar problem to the RDR in that it is a dull subject for most. But getting people, who would rather read about the goings-on in Towie or read about England’s progress in the Euro Championships, interested in money has been proved to work.

Step forward, Martin Lewis. As his new-found fortune following the sale of his Money savingexpert business for £87m proves, he has reached out to a new audience and given money matters mass appeal. If I were Steve Webb (or Nest for that matter), I would employ him tomorrow.

Paul Farrow is personal finance editor at the Telegraph Media GroupMoney Marketing



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There are 14 comments at the moment, we would love to hear your opinion too.

  1. The vast majority of people can only save for retirement on a monthly basis and clearly they need advice in this complex area. Using an AMC of 1.5% commission was available and it funded the advice. Now only those that can afford fees can obtain advice. It does not affect us – we now just market for lump sum and group scheme business. But the FSA put the final nail in this particular coffin bless them. Consumer champions – pigs might fly.

  2. When RDR comes in then pension advice for the middle/low income earners will be a thing of the past. These are the income groups who need advice to be shown the benafit of saving for retirement and not relying on the State Pension They will not or cannot pay a fee so they will not bother Those in the FSA dont seem to appreciate what they have done those who do have left.

  3. Personal pensions for those who will not qualify for flexible drawdown are quite simply immoral investments. People are conned into investing money with the enticement of tax relief, and then when they want to get at the money they are told they can only get 25% and they must lose the rest. In return for losing 75% of their money they can have a taxable income for life (however long or short that may be). This income is slighly inflated because they have access to the money of dead people who were also conned. These investments are an absolute disgrace and should be banned completely. Ripping off the poor. They stink! Let the government announce an amnesty and let everyone who wants to get their money out of these disgraceful money traps!

  4. I was at the same MM event when Lord McFall spoke. What was most bizarre is that the Independent Workplace Retirement Income Commission he established actually has some very good stuff in it about the problems & solutions of engaging the masses to save for their future. Having read the report beforehand I couldn’t understand why he didn’t use the chance to show case the report and to explain what he is planning to do with it. Instead it seems that all he has achieved is to alienate all the attendees.

  5. With adviser numbers decreasing and many advisers deciding it is no longer viable to sell individual pensions it is not surprising that pension sales are at rock bottom!
    I think RDR may help reduce those numbers even more!

  6. There is little wonder that pension are now off the radar for most people. Pensions are not complex; there just isn’t the boots on the ground to market the product, when you do sell a pension you get paid very little for it. Term assurance is not a complex product and you can get details at a supermarket yet how many people buy it?
    Compulsion is the only way, followed by education; and yes Stakeholder was a complete waste of time!

  7. Here is an idea !

    Lift the annual resrictions from ISA’s and throw pensions in the bin

  8. Ken,

    I am not here to defend personal pensions, but clearly you have an issue with them. I see many destructive comments on MM about a variety of issues, but rarely a constructive alternative. So a question…….where do you advocate that people save for their retirement ?

  9. ‘Unfortunately, recent years have seen trust and confidence in the pension industry plummet to new depths. High fees and poor returns have turned many people off pensions, so the Institute of Directors is right in one respect – pensions are failing the British public.’

    Reports like this are the problem – repeating the illusion of high fees in pensions.

    The fees in most pensions are similar if not lower to equity based ISAs and yet we dont hear of people being put off them by high fees!

  10. To – Ken Durkin – whilst I respect your opinions and they may have some merit, but you are quite simply mistaken.

    Pension planning, when used to best effect can be very beneficial in later life as the state arrangements are an even worse investment. Consider this – pay NI contributions for say a 45 yr effective working life, retire at 65 (male) and draw a miserable pension of just over £100 pw. Die at 70 from an illness.

    No further members pension, possibly some state benefits for spouse, highly unlikely in years to come as these, like alot of other social benefits, will be taken away or reduced..

    How good an investment is that?

    Second scenario – Pay into a personal pension plan for 45 yrs, increase contributions by rpi or cpi each year or to match increases in actual incomes, invest in assets which match clients Attitude to Risk, review pension plan each year as to risk factors and build in later years protection to consolidate gains, retire at 65, with a second pension and a considerable lump sum, tax free, set up a drawdown or annuity option, maybe even enhanced annuity, build in protection for spouse to be able to continue receiving 100% of annuity on death of first spouse. If in drawdown, on second death fund passes to estate minus a ridiculous tax charge, which quite frankly is the biggest rip off I have ever seen, but at least some of the money goes to the family.

    No brainer really!!

    Done properly by a caring ethical and professional adviser, pension planning for clients is worth more to them than any saving on AMCs or fees/commission charges. What other investment medium provides a 20% tax incentive, other than lump sums into EIS or VCTs which most ordinary people will never invest in.

    The whole purpose of pension planning is for pensions and as such until NRD or SRA are achieved the money remains ring fenced. Makes sense to make provision for your later years, the governments of the day are not doing it.

    This job is all about what is right for our clients, NEST is poor value for money, probably destined to fail miserably as it is a social experment, not a real attempt to address the issue of income in retirement but if a second compulsory pension contribution was to be set up, it should have been through NI contributions and ring fenced.

    We just need to educate clients as to the benefits not down play its importance and stress about charges.

    No one complains to a car manufacturer about how much profit they make on each vehicle, why do people think pension plans are any different from any other product.

  11. Make everyone a public sector employee?

  12. This is no surprise to anybody. Investment returns are pathetic, annuity returns are pathetic and there has been no concentrated effort to change the mind-set of the public. The only winners are the providers who take their management charges and provide very little in return. It is only within the last couple of years they’ve been force to notify their policyholders an open market option was available. A pension contribution is also the last thing on the mind for those people just about managing to keep their heads above water. Oh, and thanks to Mr Brown’s raid on pension funds the negativity that surrounds pensions is at an all-time high.
    This is a post taken from a forum on private and personal pensions and was one of hundred similar posts I could use as an example:
    Private pensions are the biggest con since time began. You give then your capital and in return they pay you an annuity. When you die they keep your cash.

    Stick in a building society at fixed rate. You get the same interest every month or better in many cases. Your capital remains yours.

    Exactly why would you take out a personal pension?

    Thankfully this government has removed the requirement to convert a drawdown plan to an annuity at the age of seventy – which was pure highway robbery.

    The bloody pensions companies are worse than the banks – and that’s saying something!!!

    We’re all living longer without the means to finance ourselves. It doesn’t paint a pretty picture that’s for sure!

  13. In a broad outline, here is the positive side of my earlier negative critique of the current pension rationale: A pension is a deferred wage, so deferring part of a wage for future pension should be compulsory, but in the event of death the whole deferred wage should be paid to the estate. On retirement the deferred wage should be paid out like an annuity and on death the whole of the remaining deferred wage should then be paid to the estate. There should be no tax on transfer at death if the pensioner’s total retirement income is lower than the amount required for flexible drawdown. No strangers should benefit from a dead person’s deferred wages, and no one should have to live with the thought that their spouse will not benefit from their deferred wages in the event of death.

  14. Terry Mullender 19th June 2012 at 3:59 pm

    Compulsion is the only way.

    Choice can often be a bad thing.

    How many people given the choice, would pay income tax or National Insurance Contributions?

    Whay you never had, you never miss.

    Pensions will never be sexy.

    Consecutive governments have shown that they cannot be trusted to provide a decent state pension, so the only solution is the private sector.

    As soon as you start work you pay into a private pension plan. Simple! What you never had you never miss.

    And please lets at least be honest about retirement income.

    Annuities mean that people CANNOT deplete their savings and come cap in hand to the State (i.e us taxpayers) to be bailed out.

    NEST will fail. Why?

    Because people will opt out.

    There will no doubt be a period of hand wringing and endless debate before common sense prevails and compulsion s brought in.

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