Final salary pensions: RIP
The news that final salary pensions schemes have virtually ceased to exist, at least to potential new entrants is a reminder of the importance of pensions policy. It may be that the savings rate is now higher in the UK than for many years but most of us continue to save far too little to have any chance of the retirement income to which we aspire.
In a move which received little coverage outside the specialist press, Labour used the Pre-Budget Report to slow down the introduction of the Personal Accounts System including the element of matched savings through which employee contributions are matched by employers. Yet ministers and civil servants privately agree that even this system will only make a difference if the target savings levels are rapidly increased, as, for example, they have in Australia. Meanwhile the Conservative policy on pensions – arguably one of the most pressing policy issues we face – remains opaque.
The RSA addressed some of these issues with our Tomorrow’s Investor project last year and I am keen that we continue to work in this field. I have argued in the past that to close the ‘social aspiration gap’ more people need to be more self reliant. The truth is that we want to live longer but we don’t want to accept the consequences of this advance: to whit, saving more and working longer. In part, the collapse of final salary schemes (which were generally well managed and with low fees) came from an unwillingness by employees’ representatives to renegotiate the benefits of these schemes even as the evidence of their non affordability to the business and unacceptability to shareholders grew.
The result is that most of us are implicitly relying on the state or our grandchildren to keep us comfortable in old age (and this applies as much to the middle classes as the poor). Sorry to start the New Year with gloom, but this is a text book example of a combination of a lack of public realism and political courage conspiring to store up huge future problems.