Julian Knight: This pensions carry-on is no laughing matter
The fledgling Nest scheme will not get the chance to fly unless ministers commit to overall reform
Sunday 29 January 2012
What a carry on! In the same week as the big advertising campaign for the new all-singing and dancing Nest scheme is rolled out, the Government announces yet another delay to the full implementation of its workplace pension reforms.
We will now have to wait until 2018 – a staggering 14 years after the idea was proposed by Lord Turner – for all employers to be compelled to pay money into their workers' pensions. Yet again, ministers have bent to business claims that having to auto-enrol employees into a pension – even the low cost Nest scheme – and making a small contribution will hurt them and job prospects.
Of course, it's difficult to resist such calls as the economy sits precariously on the edge of a possible double-dip recession but really the Government needs to be braver if it truly believes in auto-enrolment, Nest and employer contributions.
And that's part of the problem. The so-called consensus on pensions across government and the opposition is weak.
I don't think this latest delay comes from the Lib Dem side of the coalition, but from the Tories. In the run up to the last election they were dismayed that Labour rushed through its Nest legislation and wanted time to make it more business friendly.
It's a shame that Steve Webb, the pension minister, hasn't been able to resist the gradual putsch from the Tories. And we are not finished here, who is to say there won't be further delays – despite government assurances. Remember the next election is only three years away.
This delay worries me because some of the necessary changes which have to happen to make Nest work may also suffer the same fate. For the scheme to work as intended we need the following to happen:
First, means-tested pension benefits have to be scrapped and replaced with a more generous flat, universal pension. If this doesn't happen then people who save into Nest – even relatively large amounts – will lose much of it by being barred from these benefits. No adviser worth his or her salt will advise most people to invest in Nest if these benefits are still in place.
Second, contributions have to be higher than the minimum. Put simply, if you save the minimum in Nest for 10, 20, or 30 years its likely to give you a very small amount of cash, particularly when spread over a post-work life which could span four decades. And, with further delays to employers making their tiny contributions, it's going to be even harder to build up a decent pension. Ultimately, I imagine most will be disappointed with their Nest-egg unless the message on how much to save is sufficiently loud.
The threat of levelling down is also a massive concern. I can see that over time employers with more generous schemes will reduce what they pay to Nest minimum levels. So, if you get 5 or 10 per cent of salary from your employer at the moment you could see that slashed to a paltry 3 per cent. Mr Webb admits this will happen with new joiners, so firms that now have good pensions will soon have a two-tier system. And, as we saw during the dismantling of private-sector final-salary schemes, the lower benefits given by new joiners will eventually be foisted upon longer serving staff.
Nest may "level up" millions who currently don't have a pension into a scheme which won't yield enough, but "level down" millions who are saving hard and have a real chance of putting enough aside for their retirement. The uninformed and largely careless are raised up while the informed and careful are damaged. In some respects it's similar to what is happening in the wider economy where savers are suffering to the tune of billions to secure lower rates for borrowers who may have over-extended themselves.
The case for Nest is currently on a knife edge and it's absolutely no joke.
Problem gambling: Amid heavy advertising and a surge in remote sports betting, more and more 16 to 24-year-olds are now seen as 'at risk'
10 tips for taking out a personal loan
Make money as a mystery shopper
The HiFX guide to managing corporate foreign exchange and international payments
How to start your own internet business
- 1 What if 35 Palestinians had died, and 800 Israelis?
- 2 Disney heiress Abigail disowns her share of family profits in West Bank company
- 3 The secret report that helps Israel hide facts
- 4 'Women should not laugh in public,' says Turkey's Deputy Prime Minister in morality speech
- 5 Ross Burden dead: MasterChef and Ready Steady Cook star dies at age 45 after suffering from cancer
The secret report that helps Israel hide facts
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
A day in the life of Vladimir Putin: The dictator in his labyrinth
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Boozy, ignorant, intolerant, but very polite – Britain as others see us
Were 'Poor Doors' added to mixed developments so wealthy residents don't have to go in alongside social housing tenants?
- < Previous
- Next >
iJobs Money & Business
Negotiable: Harrington Starr: Client Services Associate (Microsoft Office, Ana...
Negotiable: Harrington Starr: Graduate Data Operations Analyst (Graduate, Anal...
£40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: Dynamics...
£4000 - £30000 per annum + benefits+bonus+package: Harrington Starr: Front-end...
Day In a Page
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000