As the FT has noted this morning:
Pension providers have called on the government to reform workplace pension entry rules after official analysis found hundreds of thousands of people could be brought into retirement saving if eligibility criteria were eased.
So what is really happening here? What pension providers have noticed is that those earning less than £10,000 a year are not being automatically enrolled in pension schemes that require that 5% of their earnings be paid per month into the City Ponzi scheme, which they obviously think needs a few more members to keep values topped up in the face of the combined pressure of recession and rising interest rates, with all their knock on effects.
Thankfully the government has decided that those on such low earning levels should not be expected to make pension contributions of this sort. Those on such earnings should, instead, be allowed to make their ends meet without a rent being imposed on their earnings by the City of London.
It might be hard for the City to understand that those earning less than £10,000 a year really do not have the capacity to save. That it so hard for them to do so might also be some indication of how far removed from the real world they are.
That we require anyone earning less than average earnings to contribute to such badly designed and inappropriate pension schemes that are so unlikely to meet any need, so far removed are the ‘investments' in which these funds are saved from being aligned with any social goal, is astonishing to me. All of this sum is extracted from those on low earnings to simply inflate the wealth of those with much bigger stakes in the stock market.
In that case I have three suggestions.
Fierst, if such a scheme is required the state should pay these contributions. Given it already pumps £55 billion of tax revenue foregone into subsidising pension saving the marginal cost would be small.
Alternatively, we should return to a state earnings related pensions scheme.
Third, we should discuss what pensions really mean. What pensions actually represent are an agreement that one generation will generate sufficient capital for the next generation to use so that by the time they retire that next generation can afford to forego part of their income to keep that older generation in comfort when they no longer work, the capital donated by the previous generation being the compensation to the next generation for doing so.
There is, in other words, an implicit and very tangible bargain in place.
My suggestion is that we are failing on delivering on that bargain. We create financial assets that we expect the next generation to buy when they do not have the means to do so. What we are not bequeathing them is the means to actually sustain themselves with the real capital that we pass on, much of which is impoverished and which we are leaving them to replenish.
That is the real pension crisis that we face that only something like a Green New Deal can resolve.
And the last thing we need is more saving in the City's Ponzi scheme that will ultimately fail us.
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This is saving to provide a pension “over and above” the State Pension (currently £7k). If you are only earning £10k this seems absurd.
Having said that, given the tax breaks and employer contributions, there will be some people under the £10 threshold who would like to be enrolled but are not…. although this will not be a significant number and your suggestion of getting the State to contribute makes sense.
More broadly, your piece identifies the true nature of the inter-generational contract on which pensions are founded. 40 years of the “cult of individualism” that came with Margaret Thatcher cannot conceal that fact that 20 to 70 year olds look after 0 to 20 and 70 to 100 year olds. You can shuffle the paper/money all you like but it does not alter this physical fact. We (and I mean 20 to 70 year olds) need to deliver things that (a) the next generation will need and (b) that can be created now and will last. If we do things now, they won’t have to and might then have the good grace to use that freed up time to look after us when we can’t do it ourselves. “Greening” our infrastructure is clearly such a project.
The problem is not NEST or auto-enrolment it is the failure to invest in the right things. Indeed, vehicles like NEST and NS&I could be part of the solution…… but I think you have already said a few things about that!!!
🙂
Cutting directly to the chase, for blue collar workers like myself entering the work force in the late 1960s , before private pensions for the likes of us , the rule of thumb was that 3% of an average 9% National Insurance contribution was for the state pension.
If this amount was too low for a good and deserved living post retirement , then why was it not increased to achieve it,
The young old issue now being touted is a convenient excuse for those wishing to undermine the system , which is vital to my kids and grandkids , the need to be told how much contribution they need to pay for a good state pension.
The private sector within this still low wage economy for the majority of younger folk will not fulfill this
The State should be seen as the first choice supplier of Pensions , Healthcare, Education , rather than parliament ignoring the post war concensus
The private sector for these core services cannot supply the above for an affordable amount, the power of the state no longer within the gift of politics is in the quality of the services it can provide, we just need to find out how much.
Enough said methinks.
Pensions have been used to prop up useless and and corrupting ‘investments’ for far too long. They need something with real and sustainable growth potential.
It may now be the time to introduce Universal Basic Income. This would simplify electricity rebates and payback systems, housing benefit claims and pension provision.
It could be tapered and have a cut-off point for high earners and those with significant capital. It could eliminate child poverty and homeless lifestyles.
Of course some may not bother working and abuse the system but this happens anyway. For most people it would generate a much needed self-confidence again and help us deal with the financial uncertainties which lie ahead.
I don’t like the idea of a UBI, as I think it will simply see people deemed surplus to the labour needs of the economy, effectively pensioned off on a subsistence income.
I think we need to radically reevaluate what it is to be a contributing member of society, and how that contribution should be rewarded. The prevailing model says that only labour that generates profit, is worthy of any financial reward. This is a view which places capital at the apex of societal needs, and not those it is supposed to serve.
How radical you ask? Thing like, cooking a meal for your family, tending your garden, learning a new skill or just indulging an intellectual curiosity. These are all things which enrich and sustain our society, but which the very thought of remunerating would see the political class seek out the nearest fainting couch.
We have a system which seems unconcerned about the poverty of the living, and obsessed with privileging the dead capital of the obscenely wealthy.
Well said!
The real ‘Pension Apocalypse’ is yet to come when ‘Generation Rent’ start to retire with a toxic combination of poor pensions, limited savings and living in private rented accomodation.
The Housing Benefit bill will go through the roof
The underlying movement of wealth seems to be from the young to the old. On its travels the wealth I presume gets stuck in various investments. Once it arrives in the bank account of a pensioner, it then gets stuck there too because older people spend less. So what has happened? Young people are poorer, because they pay into pensions, and they cannot afford to buy houses. Whereas older people, who will now own their houses, have a pension income they probably cannot spend. Surely there is something inherently wrong in the design? A better system would provide citizens with support throughout their lives, and not disadvantage its younger members. The flaw seems to be in the conception of what pensions are for. A better system might be based on a more equitable idea. We are all stakeholders in society, whatever our age. Sometimes we need to put in, sometimes we need to take out. But we are always contributing value, even if it is not monetary. It’s the thinking that needs to change.
You are right: the design is wrong
It worked in the 60s
But not now