Connected Research

Union policy research in the 21st century

Aviva’s pensions proposals – what?

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Aviva, the insurance and savings provider, has released a set of proposals on pensions which it believes will help encourage retirement savings.

While being happy with anything that contributes to greater pensions awareness and which also encourages people to save more for their retirement, I believe this set is far more likely to lead to confusion and misunderstanding than to point a possible way forward:

– it is a mystery how allowing people early access to their pensions savings will help them save for their retirement, even where the rules of doing so are drawn up ‘in conjunction with consumers, the industry and HMRC’. People might well manage their savings within a one-year timeframe – that’s one reason why they are likely to be saving insufficiently for their  retirement. At the same time, allowing early access to pensions savings, by definition, cannot possibly assist people with their retirement savings

– harmonising tax relief at 30% will not add to the extent to which people understand how tax relief works for them – quite the opposite, it is likely to undermine it since, if there is anything that is understandable about the system, it is that you get tax relief on your pension contributions at your marginal rate. Higher rate taxpayers may gain a disproportionate share of the tax relief currently available – and you would not find a union a fair proportion of whose members are themselves higher rate tax payers to argue for a cut in tax relief – but, while we would probably agree that sensible incentives do need to be provided to encourage the lower-paid to save, doing it through the tax system probably ain’t one of them. And the transitional issues involved, in the way described by Aviva, are huge

– introducing alternative work-based savings plans is not a rational way to deal with the evident disengagement of young people from the pensions world. Work-based savings plans already exist – we currently call them pensions – and, while I would agree that we need to develop a new language based around workplace savings to deal both with that disengagement and with the distrust which young (and not so young) people have towards pensions, there is no evidence that developing a whole new raft of savings products has anything to contribute to this – in fact, probably the reverse. Language does no doubt need to be simplified but, above all, what needs to be done to re-build people’s trust in pensions is to get employers paying a fair rate into schemes

– simplifying the state pension scheme has much to commend it and it is a disgrace that only three out of five people approaching retirement know about the Pension Credit system and that, of those who are entitled to benefits, only one-third actually claim them. Introducing a flat-rate pension around the current level of the basic state pension plus Pension Credit is an interesting idea and would take many people out of poverty in retirement, but more work does needs to be done into how it would be funded: Aviva’s proposal to raise the requisite sums by new national insurance contributions for those above a certain income in retirement is, currently, insufficiently defined (and higher NI contributions, falling not just on employees, during the working lifetime is probably a better approach)

–  likewise, giving Personal Accounts holders an annual pensions statement which includes a forecast of state pension benefits is a sound, if perhaps rather marginal, idea which may well give people a better idea of how little they may be saving. The shock value of such things does help to focus the mind somewhat! Nevertheless, it remains true that it is the employer contribution (a minimum of 3%) into Personal Accounts that needs to be improved – this is simply insufficient and no amount of getting individual employees to accept responsibility for their plight can change that.

Like Aviva, Connect also wants to see ‘pensions to be built around the needs of the modern, more flexible workforce’. But, like for the workforce of 30 years ago, that’s based around delivering sufficient contributions into schemes, with a fair balance of contributions between employer and employee, and giving everyone involved a degree of certainty about what they are doing, why they are doing it and, if not about what they will get in retirement, at least about there being fair rules that surround them accessing their retirement savings in their retirement. 

If we could do all that thirty years ago, we can do it again now.


Written by Calvin

08/10/2009 at 5:44 pm

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