Pension? what pension?

Steve Webb

Steve Webb, the new pensions minister

Yesterday I went to see Steve Webb, the new pensions minister, speak at a debate sponsored by the International Longevity Centre (ILC). With some trepidation, because I find pensions terrifying. I know I don’t have enough of one, and I don’t understand them.

The debate was quite consoling, because it was clear, firstly, that pensions are really difficult to understand (it’s not just me) and secondly, that Steve Webb, despite only having been in the job a month, is one of a small minority of people who does understand them. He previously worked at the Institute for Fiscal Studies, specialising in pensions.

Before we sat down, I spoke to a pensions adviser who told me that the state pension was ‘in the international third division’ and private pensions no longer provided enough to live on. Essentially, we are all doomed.

Steve Webb is encouragingly personable and cogent. He noted that his 10 predecessors had lasted an average of a year and a month in the job, which perhaps helps to explain why the system is so Byzantine. Another reason is that it’s politically disastrous to take away benefits people have already accrued, so reforms take a long time to work through the system. Each time the government tinkers, it tends to add another layer of complexity. Dealing with it, Webb said, is like ‘wrestling with the Titanic.’

Briefly, he wants to:

  • simplify the basic state pension, which is currently in three parts (basic, second, and means tested top-up) and deters saving, because it seems to penalise responsibility. If people were certain of getting their basic state pension at the highest level the country can afford (at least where pension credit takes you to now) they would feel much more confident about saving. He said if he could do that, he would ‘die a happy man at 94 to 97.’ (This was a joke for the actuaries in the audience.)
  • Phase out the default retirement age – a coalition document promise, though he says he personally sees ‘phase out’ as a vigorous verb.
  • Introduce automatic enrolment to private schemes, and give people more access to part of their funds earlier in their lives – both of which he believes would reinvigorate saving.

There was a surprising amount of consensus on the panel, which also included the Labour peer Baroness Patricia Hollis; Lawrence Churchill, the chair designate of the National Savings Trust (NEST); and Chris Curry of the Pensions Policy Institute. However, once Steve Webb had had to leave, as ministers do, it became clear that there are huge areas of uncertainty surrounding pensions – which, if most of us are to have a satisfying old age, will have to be addressed.

  • Pensions alone won’t be enough for most people. Homeowners tend to look to their property as a source of wealth – but that will mean finding equity release schemes that people can trust (they’ve had a very bad press).
  • The twentysomething generation often have large debts left over from university and are struggling to get on the housing ladder. For them, saving for some far distant date isn’t particularly rational.
  • The 40% of people who have workplace pensions tend to be higher earners, and it is high earners who get the bulk of pensions tax relief; the current pensions system actually exacerbates inequality.
  • No one is making provision for long-term care. There’s no national insurance scheme, no consensus about the part equity release should play…This is a discussion that is overdue.
  • Chris Curry pointed out that the biggest transfer of GDP to older people had come through their working longer. But there has been very little debate about how to make this possible and the changes in mindset and working practices it will require.

The trouble, as an ILC paper published this morning points out, is that retirement means different things to different people. There are those who’d like to stop work but can’t afford to; those who don’t want to but have been pushed out of jobs because they’re seen as ‘too old’; those who are tired out and ill at 65; those who have years of potential productivity ahead of them; and those who are wealthy enough to retire early and are delighted to do so, thank you very much.

So, convincing as Steve Webb is, I’m still confused and frightened. If there’s an area of ageing that needs imagination and innovation really rather quickly, this is it.

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2 thoughts on “Pension? what pension?

  1. This makes me think of the Coronation Street storyline a few years back where financial advisor Richard Hillman set up an equity release plan for pensioner Emily Bishop (see link). Everyone was quite happy with the situation, until Hillman, having run into a bit of financial trouble himself, turned up at Emily’s door with murder in mind.

    Bad press is a bit of an understatement where equity release schemes are concerned!

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  2. It seems to be quite helpful not to understand pensions. What is a defined benefit or a final salary plan? It all seems designed to confuse, really. What your piece suggests is that pensions are just going to be a part of the solution for most people. So providing tax relief for high earners may well be unfair and sub-optimal. Instead, attacking discrimination at work, providing meaningful work and encouraging more flexible forms of work – Encore careers – should be a big part of it. The idea of retirement is based on the idea that work is something you cannot wait to get away from. But as Edmund Phelps has pointed out, the aim of work in the developed world should be to provide intellectual stimulus and enjoyment. So, rather than thinking just in terms of pensions and retirement, we should think about how we will assemble income from meaningful work and, as you point out, recycle housing wealth to support people in older age.

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