Pensions: To Be or Not To Be

Mark Sandford - May 2011
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Millions of people are likely to discover in the very near future that they are unlikely to attain the pension that they expected to on approaching retirement. This applies to those in the public sector, not just the private sector. Lord Hutton's interim report on pension provision within the public sector has been published before the upcoming Budget and it is not likely to make happy reading. The government has already stated that the State pension age for both sexes will rise to 66 by April 2020, as people now live and work longer. There are many who believe that it is only a matter of time before the retirement age is increased further.

In his report, Lord Hutton said in black and white that there must be a cap on the cost of pensions in the public sector to the ordinary taxpayer. Most people would accept this given the fact that the government has had to cut public expenditure to balance the nation's finances following the recent recession. Public sector pensions have also become an explosive cocktail compared with pensions in the private sector, which leave a lot to be desired. Lord Hutton has also suggested that pensions in the public sector be changed from a final salary basis to average earnings over a person's career. This would make sense and also reduce the sense of unfairness between workers in the private and public sectors. The Chancellor has also said very bluntly that the cost to taxpayers of public sector pensions is simply unsustainable and the government is just not prepared to foot the rising bill.

For those who work in the private sector, pension schemes are not wonderful either. So many employers have closed final salary schemes to new staff and even staff approaching retirement are discovering to their horror that employer's contributions are levelling off if not falling. For those who taken out a private pension plan, the ultimate pot may not be great, as this depends on stock market performance. There are many no doubt who simply cannot afford to pay more and more year after year, particularly when salaries and wages remain stagnant.

The government should be prepared to take on more risk concerning pensions as everyone is living a little more longer than even 20 or 30 years ago. There are also those on low incomes who simply cannot afford to save for their own pension, whether they wish to or not. If necessary, a means test should be introduced so that those who can afford to do without the State pension forego it, and those who genuinely need it, receive it. Within the private sector there are several cases of chief executives awarding themselves huge pension pots, particularly in the banking industry. Directors of PLCs certainly get a much better deal on leaving their company even if the firm's share price has plummeted.

The government should also recognise the fact that the lower income groups in cities such as Leeds, Newcastle upon Tyne, Glasgow or Hull will be fortunate to enjoy any retirement at all. However they are currently paying the National Insurance Stamp and funding the lifestyle of those who are lucky to have reached retirement age. Many men in this group will probably not live over the age of 65 or later. No one can claim that this should be right or fair. (See

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