Thursday, December 27, 2012

"Pensions will not exist by 2050"

It seems that the Daily Telegraph has a silly season in December as well as August (some would argue it actually lasts 12 months).

Michael Johnson, a research fellow at the Centre for Policy Studies is quoted here as warning that private pensions will soon cease to exist since young people see having immediate access to money more important than long term retirement plans.

I need to check with Michael that he has not been misquoted since the Telegraph has been writing some complete hysterical drivel about pensions lately. The reasoning is also a bit odd and Michael is usually pretty "bang on" about private pensions (not public sector pensions).

Young people have always wanted ready access to their money and been reluctant to save for your retirement. That is why you and your employer need incentives to join a pension and (like taxes) for it to be made compulsory. 

Also young (and older) people are not being completely stupid about not saving for their pensions. This is because for many the pension they are currently offered or have access to is just completely rubbish. They are being ripped off for a hugely expensive product that offers them no certainty in retirement.

While I think everyone should save for their pensions I can understand why so many make the understandable (and even rational?) choice not to save.

Auto-enrolment and universal pensions will make a difference. But unless people have the confidence to invest in a product that gives them some sort of guarantee of financial security in their old age then I think many won't bother. This future burden on the taxpayer should be the key issue for the Telegraph.

 I suspect that Michael is being polemic in order to bring attention to a real serious problem.

Yet his reported solution is wrong. Saving in a short term ISA is not the answer but an affordable and sustainable defined benefit scheme for the private sector is.  It is also going to have to be compulsory (at some stage).

Unless we sort this out I suspect we will soon be seeing future articles glamorising the workhouse for pensioners.


treborc said...

Millions of [people will also have little money to save for a pension, Jesus I earned £3.10.6 when I started as a trainee electrician.

After five years I was getting £13.10.6 when I then started working in a coal mine I was getting the grand total of £33 for doing a fifty hour week.

The sad fact many on the min wage today cannot afford pensions and Miliband living wage of £7.20 is not going to help many as they are taken out of benefits live housing.

Will private pension end well it will get more expensive of course the middle class may well find it better to put money into some other system the poor well they have always struggled and always will

Bryan Kennedy said...

The idea that young savers would be better off with an ISA instead of a workplace pension (therefore losing their entitlement to top-up contributions from their employer), is bad financial advice on many levels. Auto-enrolment will undoubtedly have an overall positive impact on pension savings, however, those of us at the negotiating table need to ensure that ensure that cheap and cheerful DC schemes are not used to replace more generous provisions currently in place as a crude cost cutting exercise.

John Gray said...

Hi Treborc

You are right that a living wage is not enough and that we will need a living pension as well.

We also need a different way of running our economy. The poor should not be always with us.

Hi Bryan

I totally agree. We should also be looking to reintroducing cheap and cheerful DB.