Jeff Salway: Why pensions reform simply has to succeed – for all our sakes

Published on Friday 31 July 2009 19:22

A QUICK multiple-choice question for you. Here's the scenario: you retire at 65 and hope to live until your mid-80s (the average Scottish male living past 65 reaches almost 81, the average female 83 and six months). You decide you need a generous income of £25,000 a year on which to live in retirement. How big does your pension fund need to be, at least, to achieve this?

A) – 500,000

B) – 250,000

C) – 50,000.

I'm no mathematician, but it's clear to me that whichever way you look at it, 50,000 isn't going to give you 25,000 a year for more than two years. Alarmingly, however, 20 per cent of people recently surveyed by JP Morgan thought otherwise.

Somehow, this says it all about the bleak prospects facing so many people in retirement.

The Commons work and pensions select committee published a report on pensioner poverty this week, highlighting the desperate need to improve retirement income.

But it didn't go far enough; a lot needs to change if the pensioner poverty pattern is to be reversed, because there's no quick fix.

For instance – and as the National Pensioners Convention has pointed out – the report's description of the basic state pension as a building block in retirement revealed a flaw in its argument: for many people, it is the only real block in their retirement provision.

As if to illustrate that point, research from Prudential this week revealed a trend towards workers cutting or stopping their pension contributions just when those contributions need to be stepped up.

This is because they expect to rely on the state pension and their own savings in retirement. Whether or not that is realistic, a lack of trust in pensions is hindering contribution levels, while final salary schemes are becoming a perk of the past in the private sector. So the basic state pension will have to be strengthened (preferably linked to earnings or prices) to help people on low and moderate incomes in retirement.

In addition, the retirement age needs to be scrapped. Businesses complain that the removal of a default retirement age would be a costly administrative nightmare. However, research by the Age and Employment Network found that about two-thirds of employers enforcing a mandatory retirement age conceded that the policy could lead to a loss of valuable knowledge and talent, while more than three-quarters of companies without a compulsory retirement age said it was a positive move in terms of both customer image and retaining skills.

The government has brought forward its review of the compulsory retirement age to next year, and you have to hope that it's because the argument in favour of abolishing the mandatory age has become too compelling – for workers, businesses and the pensions system.

All of this underlines why the government's pension reforms, most notably the personal accounts regime being introduced in 2012, simply have to succeed. If it works properly, personal accounts will create real incentives to saving and restore confidence in pensions, especially among those on low to moderate incomes. The implications for pensions of personal accounts failing are just not worth thinking about.

ARTICLES and press releases hailing the resurgence of domestic tourism have been polluting my e-mail inbox for weeks.

I have nothing against the general trend, of course. But what I do object to, at the risk of sounding like a pedant in desperate need of something better to do, is the term "stay-cation". This is so wrong in so many ways.

For example, the assumption that, if we were not on a "staycation", we would be on a vacation, a word that I've very rarely heard used outside North America. And the inference that a vacation necessarily means going abroad.

That it's meaningless marketing speak doesn't help either – whoever invented it should not be allowed to travel anywhere ever again.

Much as I could go on and on, I won't. But I feel better now.