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Verity&#39s view

When Ludwig Wittgenstein completed his first major work, his new publisher

wanted to know what to tell the reviewers and was desperately keen to find

out what it was all about. To his utter dismay, the 20th Century&#39s greatest

philosopher replied that what was really interesting about his

ground-breaking study of the nature of meaning was – “what it doesn&#39t say”.

It was a bit like that with the Pensions Green Paper. The two issues which

are now blindingly obvious to everyone looking at the situation were,

first, should the state retirement age be raised and, second, should

private pension contributions be made compulsory? It was what was not said

about those two issues that spoke volumes.

In fairness to Work and Pensions Secretary Andrew Smith, he did state in

his speech to the Commons why it was he felt that raising the state

retirement age would be wrong. He made one salient point somewhat neglected

by the well-paid pension gurus who normally pronounce on these matters.

His point was that it would unfairly affect those with tough working lives

whose jobs take a serious physical toll on them. Some of the least pleasant

occupations get negligible wages and, more pertinently, are much more

likely to be incapable of carrying on their jobs beyond the age of 65. To

put off the date when they can draw their state pension would simply turn

hard-working people into income support claimants.

Smith also had a good reason for not scrapping Serps and making private

pension contributions compulsory. As every IFA knows, the arithmetic of

contracting out, especially on the current National Insurance rebates,

shows clearly that those on the lower end of the income scale are almost

always better off contracted in to Serps rather than contracted out to a

private pension. The lower the investment returns from the stockmarket, the

more clearly that is the case.

As Smith pointed out, scrapping Serps and converting it into a higher basic

state pension for all would hit those people at a time when it is clearer

than ever that private pensions for those on lower incomes give poorer

value for money than the state.

It would also be profoundly regressive in the sense that the higher basic

state pension would spread money that is now targeted at the less well-off

(a state second pension for those who can&#39t afford to fund their own

private pensions) to an untargeted handout for all.

So Smith did give his reasons for dismissing calls for a higher state

pension age, a higher basic state pension, scrapping Serps and introducing

compulsory private pensions.

But what was startling was what was missing from this Green Paper. If there

is such a thing as a pension crisis, it has to do with employers cutting

their contributions at a time when they must be increased.

There was also nothing about stemming the tide of employers cutting their

contributions as they switch from final-salary to money-purchase schemes.

The unions had called for something to be done to stop it. But,

interestingly, they did not choose to protest when the issue was postponed.

Instead, they seemed more than content with the Government&#39s promise that

the issue of compulsory employer contributions would be looked at

continually by the new Pensions Commission led by former CBI chief Adair

Turner.

We should also avoid being churlish about the Inland Revenue proposals to

simplify pensions. The new £1.4m lifetime limit on tax-free pension

funds will genuinely simplify matters and the Pension Schemes Office should

be praised for breaking habits formed over decades, since which rules about

pensions have been written but never erased.

Unfortunately, what was really missing from the Green Paper was any attempt

to address the real nature of all pension problems – that pensions are

incredibly – ludicrously – long term. With many people being contributing

members of one pension scheme or another for 40 years and drawing their

benefits for a further 20 or 30 years, they are the longest piece of

financial planning anyone gets involved with. It is that fact that causes

all the problems.

The issue of pensions has, according to some political reports, been on the

agenda at meetings of the Cabinet and Downing Street&#39s policy committees

every week for months. But the Government&#39s hesitation in delivering a

convincing solution to these serious, long-term problems is the Green

Paper&#39s big omission and it will lend support to critics who say that as

far as the pension “crisis” is concerned, the Government, even now, simply

does not know what to do about it.

Andrew Verity is a personal finance reporter at the BBC

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