Some things creep up on you without you realising it. This March – the 16th to be precise – it will be 20 years since I started working in financial services. On one hand, it doesn’t seem that long ago and I don’t feel that old. Then again, when I remember all that has happened over the years, it seems a very, very long time ago, indeed.
Why the date I entered the industry, in the pension department of a big Scottish life office in Edinburgh, has stuck with me is not because I have a remarkable memory. I am a woman, so remembering dates of birthdays, anniversaries and so on comes with the territory. The reason it has stuck in my mind all these years is that the very next day – March 17, 1987 – the then Chancellor Nigel Lawson dealt a bit of a blow to the pension industry by announcing changes to occupational pension scheme rules in his Budget speech. The changes, which came into effect immediately, were quite a surprise to many and of course were accompanied by the usual grumblings inside and outside the industry. They certainly made my new job more interesting.
What I find funny is that many people seem to think that tinkering and surprise legislative changes did not happen before Gordon Brown (although I may concur with you that he is the master). They most certainly did and the March 1987 changes were only the first in a very long line that have occurred during my career, culminating in pensions becoming the utter dog’s breakfast that they are now and, more worryingly, the growing distrust of them among the British public.
If sensible solutions to the current mess are not found, we face the real possibility in around 20 years or so of having a very big population of pensioners on very low incomes because of a lack of personal saving.
The current state system, with means-testing, allied to the proposed personal accounts, may do little to change savings rates as many people on moderate incomes may be encouraged to opt out as they could receive just as much from the state had they done nothing.
Of course, there is no guarantee that the state will actually provide pensions in the future – it all depends how much is in the kitty and how much the taxpayers of the day are willing to cough up. Assuming it does, the cost could be frightening as the ratio of pensioners to the working population will be at its highest ever.
Encouraging people to make their own provision is only part of the solution. We also need to remove the very unfair system which creates an environment where those who do save are penalised heavily for doing so, many being women.
The issue of women and pensions has long been close to my heart and I was recently invited to a Ladies and Pensions dinner by Baroness Hollis of Heigham. Hollis has campaigned for many years on this issue and is an advocate of a universal state pension based on residency. I was in the company of a number of extremely bright women and everyone came to the same conclusion that a universal pension provides the fairest solution to the problem. Of course, there will be some losers as no one system is going to suit everyone but I have yet to hear of a better alternative.
I suspect some will argue that it is unfair that some people work hard all their lives and will end up with the same pension as someone who has been a scrounger for most of theirs. The very same can be argued under means-testing and, anyway, the real issue is about the income support system – something for others to discuss and resolve.
If we can devise a system that makes saving attractive for the majority of people, it will reduce dependence on the state to the point that future taxpayers will not be paying through the nose for our mistakes and profligacy.
Baroness Hollis has found it difficult to get support for a universal pension and I know any backing from you would be very welcome.
Donna Bradshaw is a financial planning strategist at IFG Group.