The culture of spend, spend, spend seems to be here to stay.
A recent report suggests the combined pension statement may have little effect in encouraging a culture of saving. Trials launched in autumn 2000 show more than 90 per cent of people have failed to act on the statements which, as expected, overwhelmingly show people continue to fail to save enough, with just under 10 per cent looking to increase their contributions.
For the companies that have taken part in the initiative, from both the defined-benefit and defined-contribution perspective, there app-ears to be little difference in the response and the levels of enthusiasm to save. This is the impact which is perhaps the most alarming.
We might expect the incentive to save within private pensions to be, and to remain, purely a matter of personal ambitions but the fact that, within company schemes, there is a stubborn reluctance to save more and make greater contributions points towards more fundamental issues.
We know many of the reasons why the current climate is not good for pensions. The impact of FRS17 and, many have argued, the removal of ACT credit has been calamitous for many company schemes.
The wide impact of compulsory purchase of annuities continues, to my mind, to be a disincentive towards encouraging greater provision through increased contribution levels. But fundamental thinking needs to take place to encourage people to save.
The Sandler review and the Pickering review have now been linked by the Department for Work and Pensions to produce key findings to promote an improved product base as well as incentives for saving.
There are encouraging signs that feeding into this process will be some useful research-led information. There are some important projects being launched at the moment which policymakers will, hopefully, be taking notice of.
One of the most influential is a new centre being launched by the Institute for Fiscal Studies. The IFS, which advises the Government on wider tax and fiscal incentive policy, is creating a centre for the Economics of Ageing.
As part of a fundamental reassessment of the motivations for saving, the IFS will be looking at whole variety of micro factors which may influence savings and investment decisions.
Wider than looking at existing provision, which can only give us a snapshot of the impact of current tax incentives, the studies will look at factors such as epidemiological information.
This assessment will start to address wider sociological reasons around saving which have been buried for generations during an era when the state pension was not set to fall over and funded company pensions were offered to the many and not the few.
The really exciting thing about this project is that the epidemiological input may challenge some of the current actuarial assumptions around the design and shape of pensions. This may offer the ability to create new plans – either personal or workplace-driven – which offer better value and terms and sufficient lifetime flexibility to make the whole process of saving for retirement more attractive.
The Government seems to believe that the most effective way of distributing pensions is through the workplace. It has shown this through the creation of stakeholder but this itself remains a poor benchmark, as both employees and employers have not been properly encouraged.
If this is the case, and I think it is, then much more work needs to be done, not just with investors/consumers but also with companies to work out intentions and ambitions.
In the main, where Government consultations on financial services issues focus on both consumer and industry inputs, this has perhaps always been the case.
But there appears to be very little in the way of communication with the wider “supply-side” – the employer community which appears to be abandoning the traditional model for workplace pensions – DB schemes.
There is perhaps a considerable role here for the Sandler and Pickering consultations to talk more extensively to the CBI and Institute of Directors, as well as a number of the companies with significant existing DB schemes. Who is asking them the question – just what would make companies make pensions more attractive?
One of the key phrases of the first Blair term was “joined-up thinking”. We have not heard much of this in recent times but actions do speak louder than words and former DWP Secretary Alistair Darling's linking the Sandler and Pickering processes is to be applauded.
The outcome is also much anticipated because some firm policy proposals need to be implemented in the coming year to encourage vitally retirement savings.
If not, then the trickle of DB closures will become a flood and the current private sector pension options do not look attractive to a vast number of people – especially to those aged 45 and under.
Everyone knows now is the time to take action.
Iain Anderson is a director and chief corporate counsel at Cicero Consulting