The Turner Report, which is rumoured to have cost the government well over £5m, was definitely not value for money. Not only did the report contain nothing new, but the outcome was more unsatisfactory than ever.
But what made the report so disappointing? It is the fact that Turner has managed to narrow his options to the areas of pensions which have broadly been tried and tested in the past and have patently not worked is the most disappointing aspect. If this was not the case then the industry would not be facing the problems it is today. This report was Turner’s golden opportunity to do something radical to shake up the pensions industry in the UK – he missed it.
Turner not only missed this opportunity but missed the point altogether. The real issue is if left unadvised, British people do not like to save for anything that is longer away than next year’s holiday – and if they can borrow the money to be able to fund it then they will.
The savings gap that currently exists in the UK has come from the fact that we simply do not have enough distributors. If we take a look back 15 years to 1990, we had considerably more RIs than we have today – we are now down to about a quarter of the amount. When this is put against the hugely increased need and ageing population in the UK, it is easy to see how the savings gap has widened over time.
This, added to the government and Turner’s sole concern for cost, make it easy to see how there has been a serious failure to recognise just how important pensions are. And while they may state that pensions are important, it cannot be the case as they are saying they want the consumer to buy a pension unassisted. By reducing the space available for advice, through a series of misplaced regulation, the government has managed to reduce the amount of pension sales thus creating its own mess. But instead of solving this mess themselves, they expect the employers to sort the mess out for them through compulsory funding of a state managed scheme.
There is, however, some good news. If as an employer people are going to be forced into funding a pension for somebody else, then the employer might as well have their own company pension – and at least they will get some credit for their contribution.
It is not just the drop in sales and concern over cost that has led to the situation that the pension industry finds itself in today. The governments approach to property and buy-to-let is leading many consumers into a dangerous area – thinking that buy-to-let will be their pension. Whether they are thinking along the right lines depends very much on whether they can get the capital invested versus the rent collected yield to be worthwhile. In order to do this people often purchase properties in the less expensive neighbourhoods. However, you just have to look around any UK town to see these properties will eventually de-value to nothing. The chances are, the people who depend on property for their pension will outlive the property and therefore the pension will die first.
Finally, an aside from Lord Turner and his report. Since this New Labour government came into power in 1997 we have seen the number of public sector employees increase by around half a million. Not only this, but we have also seen the government back down to the unions so that public sector employees can retire at 60. But at the same time the people who pay for public sector workers to have this privilege – the taxpayers – will have to wait until they reach 66, 67 or 68 by 2050.
Why did Lord Turner not do something radical and recommend that all final salary schemes which are not privately funded are wound up within the next few years. The amount of tax saved could then be put towards providing a flat rate pension for all, which would be based on residency. An end to public sector final salary pensions and inflation proofed pensions funded out of the pockets of the remainder of UK taxpayers.
These same conditions should be imposed upon MP’s. And the shareholders of life companies who sell defined contribution pensions should question the directors and staff who believe so much in the products they sell, that they have set up a different scheme for themselves, which is final salary and funded by their clients of course. You never know.