We’re all doomed Captain Mainwaring!
We’ve been catching up on some reading recently after all the efforts to get the web site up and running. A few weeks ago the Department for Work & Pensions issued a short overview of what employers have to do to comply with the new auto-enrolment monster that’s about to hit us all. If you want to catch up on auto-enrolment here’s a link to one of our previous blog articles on the subject.
No, the thing that caught our eye in the DWP report – which you can read here – is the shaky basis upon which our state pension scheme finances are based. In the overview there’s an interesting diagram about how many workers are needed to support every pensioner that gets a state pension. We’ve included it below:
Source: DWP – Automatic Enrolment and Workplace Pension Reform – the facts. May 2011
By the looks of it by 2050 we’ll each have to adopt a pensioner and pop round every month with their pension money! Clearly, this can’t go on. That’s why successive governments have ducked the issue of state pension reform as it’s such a long term 
issue. The Coalition are looking at ways of reforming the state pension by increasing the age that you can draw benefits and moving towards a flat rate £140 per week benefit. But the pay-as-you-go system that we have – where money we pay today is paid straight out in pensions – will still reach crisis point at some point in the future. Our kids and grandkids will no doubt be responsible for sorting out the mess then.
Compulsion – but not as we know it
That brings us in a roundabout way to the thorny issue of savings. If we are only just going to get enough from the government to survive on the responsibility is on us all to save up now for retirement. The government thinks so too that’s why it’s making every employer in the UK automatically enrol the vast majority of their employees in a workplace pension scheme.
There are reams of research to show that most of us have been seduced by the live fast spend fast culture that the last few decades’ prosperity have 
brought us. The Oddfellows issued a report last year that showed that less than one in five people had any idea what they needed to be saving up for when they stopped working. Yet there’s a feeling that when the new pension rules come in a significant number of people will opt-out. Although they won’t have to pay the contributions required they’ll also lose the employer’s contribution.
Opt-out or Opt-in?
There’s got to be an argument to say that by all means they can opt out but they still get the employer’s money. After all as a little salesman outside a carpet store in Jaisalmer said to me (on only about 100 occasions) “Something is always better than nothing”.
Our view is that eventually the ability to opt-out will disappear as so much of our future state pension planning depends on us taking responsibility for our own savings. Once it’s gone we’ll be in the situation where pension membership is compulsory – just like we were up until the 80’s when the then Conservative government abolished compulsory pension membership. Twenty odd years later and we’ve come full circle only the pension benefits on offer are a shadow of what they were in the 80’s.
A Cunning Plan?
I fear that as a nation our behaviour must change if we are to avoid living on £140 a week. I think that there is no silver bullet. Yes we need compulsory saving. If we are not going to do it ourselves we need help. But we also need to get basic financial education back into the schools. I recall the local saving bank coming into our local primary school in Dundee many years ago to collect savings. Most of the class saved something. Now you can get a credit card as soon as your 18.
Our policy to sorting out the financial health of our population has got to be more joined up and less of a knee-jerking, zig-zag of sound bite policies.
Oh, and by the way, something was indeed better than nothing. We eventually bought a wall hanging from the wee man in Jaisalmer and it still hangs in our lounge ten years later!
Steve Clark