Saving isn’t fashionable.
The financial culture of the 21st century doesn’t encourage it, with low interest rates, easy access to credit and the perpetual pursuit of instant gratification. Coupled with spiralling student debt, a difficult housing market for first time buyers and an immensely complex pensions system, is it any wonder that so many young people are delaying thinking about their retirement and pension provision? Yet even if it is unsurprising, it is deeply worrying. As our population ages, individual provision for retirement becomes even more important.
I was prompted to start saving for retirement at 21, because my company pension scheme included matched contributions from my employer. This incentive made it seem worthwhile to save, hard as it was to juggle student loan repayments, rent and bills on a starting salary. And I wasn’t put off by the bewildering array of pensions products, because I only had to investigate one scheme.
A Long-term Approach to Pensions
Pension reform must be about a long-term solution, which will outlast any individual government. That’s why all parties must come together and seek a sustainable consensus to prevent further pensioner poverty and to give today’s workforce a transparent system they can trust.
But I think we also need a body like an Independent Pensions Authority to give advice on pensions and to reduce the meddling hand of successive Governments, who chop and change policy ideas on pensions, cutting back on benefits and adding new requirements.
With Adair Turner’s Pension Commission due to come up with long-awaited recommendations on pension reform very soon, it is worth looking at the basic principles on which I believe pension reform must be based.
Clear and simple pensions
The state’s responsibility must be to provide a pension set at a level designed to keep existing and future pensioners out of poverty, without reliance on mass means-testing. This pension should be uprated in line with growth in national average earnings, so that pensioners’ incomes do not fall behind those of the rest of the population.
Such a pension, without the myriad add-ons, one-off payments and means-tested additions and premiums, would be considerably easier to understand. People saving for retirement will have a good idea of what they will receive and they will know that without means-testing, every pound saved will make them a pound better off in retirement.
Fairness for Women and Carers
The system on which entitlement to a pension is based rests on a totally outmoded, idea of the role of women in the labour force. Despite reforms to the National Insurance system, women and carers remain significantly under-pensioned and reliant on their partners’ pensions. A new pension system must not discriminate against those with broken work records – mothers and carers are making a vital contribution to society even if their work is unpaid. Further tinkering with the National Insurance system may help at the margins, but it is hard to see how long-term it can provide a 21st century answer to pension provision considering the working lives of the majority of women and carers.
Valuing older workers
As a society we need to think about the implication of a retirement age of 65. Whilst retiring early may be a dream to some people, many over 65s still have so much to offer, be it in employment or education. With the average lifespan exceeding 80 years, we as a nation cannot afford to stop people over 65 working if they want to. Giving power to the individual to choose to wind-down their employment to part-time would keep key skills and experience in the workplace for longer.
I hope that when the Pensions Commission reports on 30th November they come up with recommendations that ensure fairness for all and a simple and transparent system everyone can have confidence in.