Pensions – An inevitable change finally happens
Yesterday a change which I have been expecting for 20 years was finally announced.
When left University in 1985, I was determined to ensure that from my first proper job I would have appropriate pensions provision. To anyone with even a limited understanding of economics and demographics, it was already obvious that by the time I reached retiring age some forty years later, the funding of pensions was likely to be a huge problem. Even in the mid 1980’s the combination of increasing life expectancy and gradually declining birth rates over the previous 20 years made it apparent that in the first two decades of the 21st century, the share of the UK population of traditional working age would dramatically reduce while the proportion of traditional retirement age would dramatically increase. Providing everyone with a generous state pension was obviously going to become impossible unless taxes went up dramatically, saving was increased, or retirement age went up.
So on starting work, I read the details of my occupational pension scheme carefully. The terms seemed generous and realistic, except for one detail – my contract stipulated a retiring age of 60. I recall laughing about this and thinking it unlikely that by the 2020’s there would still be a retiring age as low as 65, never mind 60.
Yesterday that prediction came true: my employer announced that it is not just increasing the normal retirement age but abolishing it. Those who wish to retire at 60 will be able to do so, but those who don’t want to retire and are able to meet normal job performance standards will be able to continue working with no upper age limit.
As people live longer it will be more and more essential that employers offer more flexibility to allow older workers to continue full-time or part time work in a way which suites both employee and employer. Other examples of flexible retirement options which are being introduced by enlightened companies include –
Wind Down - part-time & job-share options
Step Down – e.g. to a post with lower responsibilities or pressure
Time Out - phased sabbaticals
Helping Hands - secondments (full/time or part/time)
Ease Down - gradual reduction in hours or responsibilities
(These are the terms used by BT – other employers have different names for the same concepts.)
Unfortunately the biggest single obstacle to more widespread adoption of flexible and sensible retirement terms can be summed up in two words – Gordon Brown.
Like the rest of Europe we have a serious pensions problem, but it could have been and nearly was prevented.
In what should have been a rare example of a government seeing a problem 20 years ahead and actually doing something about it, the then Cabinet minister Tony Newton changed pension arrangements in 1985 to give much greater incentives to save. This generated a huge increase in investment in occupational pensions which was well on the way to solving the problem: by 1997 Britain had more money invested in pension funds than the whole of the rest of Europe put together. Sadly that achievement was destroyed by the inexcusable incompetence of Gordon Brown, who wrecked both incentives to save and the level of pension provision with his irresponsible “stealth taxes” such as his £5 billion a year raid on pension funds.
Among other consequences this has meant that the great majority of “Final salary” occupational pension schemes have been closed to new members. Gordon Brown’s pensions policies have not just hurt present-day pensioners, but have also damaged the future prospects of those who are currently middle aged and those who are currently younger workers. And many of those who ought to have benefited do not: because Brown’s Pensions Credit is so complicated, a third of the poorest pensioners do not apply for or receive it, presumably because they cannot understand the lengthy application forms
The impact of Brown’s raid on pension funds, and his over-complicated, incentive-destroying Pensions Credit can only be described as evil, but they are far from being the end of his mischief. He is also planning a cap on personal pension funds and yet another stealth tax on those whose personal provision exceeds that cap. The proposed level of the cap, between one and two million pounds, may sound high, but it will catch many middle income workers with final salary pension schemes. And here is the final insanity – for a good chunk of middle income workers, delaying retirement from 60 to 65 or above will bring their pension pot over the cap, ensuring that the treasury takes away much of the benefit of their extra years of work and saving.
In other words, as enlightened companies are moving to address the problems facing Britain in the 21st century, Gordon Brown’s stealth taxes are destroying the incentive for people to take advantage of the freedom on offer.
We need a chancellor who actually understands and acts on the principle of providing incentives rather than one who parrots the language while destroying the reality. I shudder to think what damage the present incumbent will do if he manages to become Prime Minister. My consolation is that if Gordon Brown does become PM he will be the Al Gore of British politics – and I don’t think we’ll need a Supreme Court to stop a recount.
When left University in 1985, I was determined to ensure that from my first proper job I would have appropriate pensions provision. To anyone with even a limited understanding of economics and demographics, it was already obvious that by the time I reached retiring age some forty years later, the funding of pensions was likely to be a huge problem. Even in the mid 1980’s the combination of increasing life expectancy and gradually declining birth rates over the previous 20 years made it apparent that in the first two decades of the 21st century, the share of the UK population of traditional working age would dramatically reduce while the proportion of traditional retirement age would dramatically increase. Providing everyone with a generous state pension was obviously going to become impossible unless taxes went up dramatically, saving was increased, or retirement age went up.
So on starting work, I read the details of my occupational pension scheme carefully. The terms seemed generous and realistic, except for one detail – my contract stipulated a retiring age of 60. I recall laughing about this and thinking it unlikely that by the 2020’s there would still be a retiring age as low as 65, never mind 60.
Yesterday that prediction came true: my employer announced that it is not just increasing the normal retirement age but abolishing it. Those who wish to retire at 60 will be able to do so, but those who don’t want to retire and are able to meet normal job performance standards will be able to continue working with no upper age limit.
As people live longer it will be more and more essential that employers offer more flexibility to allow older workers to continue full-time or part time work in a way which suites both employee and employer. Other examples of flexible retirement options which are being introduced by enlightened companies include –
Wind Down - part-time & job-share options
Step Down – e.g. to a post with lower responsibilities or pressure
Time Out - phased sabbaticals
Helping Hands - secondments (full/time or part/time)
Ease Down - gradual reduction in hours or responsibilities
(These are the terms used by BT – other employers have different names for the same concepts.)
Unfortunately the biggest single obstacle to more widespread adoption of flexible and sensible retirement terms can be summed up in two words – Gordon Brown.
Like the rest of Europe we have a serious pensions problem, but it could have been and nearly was prevented.
In what should have been a rare example of a government seeing a problem 20 years ahead and actually doing something about it, the then Cabinet minister Tony Newton changed pension arrangements in 1985 to give much greater incentives to save. This generated a huge increase in investment in occupational pensions which was well on the way to solving the problem: by 1997 Britain had more money invested in pension funds than the whole of the rest of Europe put together. Sadly that achievement was destroyed by the inexcusable incompetence of Gordon Brown, who wrecked both incentives to save and the level of pension provision with his irresponsible “stealth taxes” such as his £5 billion a year raid on pension funds.
Among other consequences this has meant that the great majority of “Final salary” occupational pension schemes have been closed to new members. Gordon Brown’s pensions policies have not just hurt present-day pensioners, but have also damaged the future prospects of those who are currently middle aged and those who are currently younger workers. And many of those who ought to have benefited do not: because Brown’s Pensions Credit is so complicated, a third of the poorest pensioners do not apply for or receive it, presumably because they cannot understand the lengthy application forms
The impact of Brown’s raid on pension funds, and his over-complicated, incentive-destroying Pensions Credit can only be described as evil, but they are far from being the end of his mischief. He is also planning a cap on personal pension funds and yet another stealth tax on those whose personal provision exceeds that cap. The proposed level of the cap, between one and two million pounds, may sound high, but it will catch many middle income workers with final salary pension schemes. And here is the final insanity – for a good chunk of middle income workers, delaying retirement from 60 to 65 or above will bring their pension pot over the cap, ensuring that the treasury takes away much of the benefit of their extra years of work and saving.
In other words, as enlightened companies are moving to address the problems facing Britain in the 21st century, Gordon Brown’s stealth taxes are destroying the incentive for people to take advantage of the freedom on offer.
We need a chancellor who actually understands and acts on the principle of providing incentives rather than one who parrots the language while destroying the reality. I shudder to think what damage the present incumbent will do if he manages to become Prime Minister. My consolation is that if Gordon Brown does become PM he will be the Al Gore of British politics – and I don’t think we’ll need a Supreme Court to stop a recount.
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