Jeff Salway: It may be radical, but national pensions scheme must work

Not enough people were saving, those who were saving were putting too little away and the ageing population threatened to land future governments with unsustainable pension bills unless more people took responsibility for their retirement plans.

It’s quite safe to say that nothing has changed in the interim. In fact, it’s become considerably worse, thanks in part to the financial crisis and its profound, lasting effects.

Last week the Office for National Statistics revealed that the number of people paying into private sector company pensions has slumped to a record low. Final salary schemes are dying out, private pension savings remain too low and an alarming proportion of the  population face financial hardship in retirement.

When the commission published its conclusions in 2005, one proposal stood out in particular – the National Pension Savings Scheme. This would see workers automatically signed up for their employer’s pension schemes, with contributions from employee and employer.

Over the past seven years there have been grumblings from employer groups, calls for the plans to be delayed or scrapped altogether and dire warnings of workers opting out in their millions rather than forsake some of their take home pay. Debate over how the scheme would work, who it would cover, the level of contributions and how they should be invested has been endless.

The mis-selling word has cropped up, with fears that by saving into the scheme some employees would fall foul of means-testing and end up worse off. That has been partially addressed by the planned universal state pension, although the government is now, dangerously, getting cold feet.

I can recall reporting on the Turner report when it was published back in 2005. The idea of automatically enrolling people into workplace pensions seemed ambitious – and unlikely ever to see the light of day.

Somehow though, it will finally begin on Monday. The biggest employers go first, with all but the smallest firms following suit over the next few years.

But it’s still not popular. A  recent BBC website report on the launch was followed by hundreds of comments by readers who don’t believe the scheme is in their best interests. Distrust of the government and the pensions system is rife, with some justification.

The very pension companies urging people to take advantage of automatic enrolment are those that undermined public faith in pensions through mis-selling and mismanagement. The Equitable Life debacle in particular comes up frequently on the BBC comments pages. Government tinkering has had a similar effect.

So it’s an ambitious and radical project – and it’s one that has to succeed. The early stages are crucial – a high level of opt-outs will undermine confidence in auto-enrolment and reinforce the negative public perception of pensions.

To really work, it has to engage employees and get more people into the savings habit. It also means people and employers paying more than the minimum contribution levels and a lot more work on improving the choices on offer once people reach retirement.

The reforms that begin on Monday will have a lasting impact, for better or worse.

There’s another key date on the horizon before the end of the year – and it means that women planning to buy insurance over the next few months should think about doing so soon.

New EU rules coming into force on 21 December will ban insurers from using gender as a factor when calculating premiums. The change will in some cases benefit men, in others it will be good news for women.

It was expected that insurers would have started excluding gender from their pricing in advance of the change, but that hasn’t been the case.

That’s good news for women intending to take out or renew a life or car insurance policy – but the window for buying while it’s cheaper may be open for long.

Comparison site Gocompare has been running a gender watch study, comparing the car insurance premiums offered to men and women. One theory is that under the new rules, premiums will be equalised – coming down for men, rising for women and meeting in the middle. But the difference has widened since the start of the year, according to Gocompare, with men currently paying £315 more, on average.

Insurers are clearly watching and waiting, but there’s a strong chance that rather than equalise premiums, the cost of car insurance for women could simply move closer to the male rate.

That spells potentially huge increases – so it really could be a case of buy now while stocks last.