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Reid all about it

Recovering from the flu always give you time to reflect and catch up on your reading. Watching the problems that the Pension Protection Fund has had over figures simply reflects that when you are trying to do something expensive on the cheap it invariably comes unstuck.

The press implied that John Prescott has lost his bottle over the much needed changes to the local government pension schemes moving retirement ages up to 65. When everyone else is facing an age 70 retirement age, based on recent comment, it is a bit rich for unions to argue for the status quo. But then union experts on the matters of pensions have always been a source of amusement for me. I remember being told by one of their number that escalation came at nil cost. When I suggested that if that were true she could source my pension, her contact details were not forthcoming.

Pay-as-you-go pensions, as the main statutory schemes are, are a delight for the actuarial profession – no need to make any assumptions, no need to make any tiresome investment calls. Running one of these schemes is akin to splitting a restaurant bill among friends with the tip (escalation) being covered not by you or your employer but by the taxpayer.

There is no doubt that when the general public get to grips with annuity rates as they consider pension simplification issues, they will start to understand the level of cost that the public sector passes on to the rest of the population.

By now you will have noticed that I do not approve of the pay-as-you-go system and nor do I see much of a future for final-salary schemes once the costs of the Pension Protection Fund start to bite.

The costs suggested for deferred members will make many schemes realise that, in all too many cases, they are keeping schemes going not for existing but for those employees who moved on to other companies. Just how you justify to your shareholders being loyal to those who show no loyalty to you remains a mystery to me.

Pensions will be the main topic of conversation as we run towards April 6, 2005. Whether you are looking to protect what you have or trying to improve what you may have in the future, we will all be looking for more information.

The challenge we will have is to move the focus from now to some time which seems so far away in the distance. Taking the public from spenders to savers cannot happen in a single bound, and nor should it.

We need to help individuals recognise that planning involves not just numbers but also hopes and desires. We need to inspire them into making serious inroads into the savings gap. This takes creativity, which is something the Treasury needs to recognise quickly.

Before I close, I would like to offer my condolences to the family, friends and colleagues of David Norton. His contribution to the development of the professional financial planner cannot be underestimated and I, like many others, gained from the way he shared his knowledge.

Robert Reid is principal of Syndaxi Financial Planning

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