Home in on a way to save our pensions
Sunday 31 July 2005
There's something in the air. Like summer storm clouds that threaten a downpour, the atmosphere is thick with oppressive expectation ahead of Adair Turner's recommendations on Britain's £57bn retirement savings crisis.
The pressure is almost unbearable but there's an awful long wait ahead, for Mr Turner's Pensions Commission might not report back until the end of November. In the meantime, members of the UK financial services industry are trying to pre-empt its conclusions and advance their own theories about what should be done.
Last week, the Association of British Insurers pitched in with a policy paper for Mr Turner's attention.
To help the millions of savers who have a handful of small, disparate private pension pots amassed over the course of a working life, it wants a simple pensions "transfer mechanism" that cuts away all the fees and administration that can deter workers from moving their money into one place.
Prudential, meanwhile, unveiled plans for a new equity-release product (see back page), to help pensioners boost their savings. It believes that this method of releasing cash from your property will be one of the big things in finance over the next decade.
Others, such as the independent financial adviser Hargreaves Lansdown, believe savings salvation lies with the self-invested personal pension (Sipp), a DIY retirement plan that lets you choose which funds you invest in. From 6 April 2006, you will be able to put Sipp savings into residential property, art or even wine.
All the while, company pension schemes struggle to cope with their own funding problems.
Another nail was hammered into the coffin of final-salary schemes last week when insurer Royal & SunAlliance revealed that, as a cost-cutting move, it was to restructure the pension offered to its own staff.
Instead of payouts depending on their final salary, employees retiring from January 2006 will now have their pensions determined by their "career average".
If you're trying to plan for retirement, you could be forgiven for scratching your head. For when the industry is looking in different directions, where does the man in the street stand?
How Mr Turner will try to solve all this is unknown. All we can be sure of is that there won't be a single "magic bullet" that disposes of the problem at a stroke.
We may, as seems likely, end up with "auto enrolment", where workers are co-opted into an occupational scheme unless they make the effort to say otherwise. The obvious alternatives, higher taxes or working longer, might prove more unpalatable.
The biggest question mark, however, is placed next to our homes: what will Mr Turner suggest for property? Will it - or should it - have a role as part of pension planning?
The idea that bricks and mortar could be a solution to the £57bn long-term savings gap offers both potential and peril. The financial reserves to be tapped are enormous - more than £1,100bn of unmortgaged wealth is locked up in the homes of the over-65s, according to the Institute of Actuaries. That's very difficult for Mr Turner to ignore.
But schemes such as equity release, which let owners tap into that wealth, are, so far, less than satisfactory and carry plenty of dangers.
There must surely be a lower-risk way to let homeowners benefit from what is often their only asset. The industry hasn't yet found it. Maybe Mr Turner can shed some new light.
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