William Kay: Pensions plan merely postpones ageism to 70

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The Independent Online

Patricia Hewitt, the Secretary of State for Trade and Industry, is normally a pretty tough customer. But she was at her most ingratiating on television this week, having drawn the short straw every minister for the past 20 years or more has been dodging. She had to tell the electorate they are going to have to work longer.

Of course, being a seasoned politician, Ms Hewitt sugared the pill. No question of compelling us, just giving everyone the choice, all part of complying with a European directive against ageism. Except that we are not going to abolish, but merely postpone ageism: it will begin at 70 instead of 65. Pension schemes are not yet imaginative enough to envisage open-ended retirement dates.

As far as possible, the politicians are clearly planning to let employers take the brunt of the blame for this proposal, for many companies will take the opportunity to prolong retirement dates. If they can force employees to work the extra five years, the workers will be making more contributions to their pension, and have fewer years left in which to draw it. A 30-year-old contributing £100 a month will draw a pension of £91 a week at 65, £136 if he delays until 70, a rise of nearly half.

I have long argued that later retirement will be no more than a reflection of insufficient savings and greater longevity. When pensions were invented in the 19th century, people were not expected to collect them for more than a few years before dying.

The more recent notion, that we can work for 40 years and retire for 20 or 30, could not be sustained unless most of us were prepared to give up far more current spending that we do.

But, having aligned myself thus far with Ms Hewitt, or she having aligned herself with me, I feel the Government has bitten the bullet in the most weasel way possible. It even grabbed the chance to cut statutory redundancy from one and a half weeks' pay per year of service to just one week.

It is a pity that the announcement has been so mishandled, because it is long overdue for ageism to join sexism and racism on the scrapheap of outdated employment practices. Many people would like to work longer, but are being thrown out of work long before the end of their useful working lives.

Far better would have been to be upfront about the problem: the retired will soon be imposing too great a burden on the working population, and more and more of us are going to be healthy enough to keep working a few years longer. Those who cannot will, as with people below retirement age, be eligible for various benefits. As Tom Tickell explains on this page, a growing number of people are in any case providing for themselves in the event of long-term illness or disability.

Instead, the debate is going to be on the basis of Ms Hewitt's wishy-washy stuff about widening the talent pool and leaving it to employers to work out what to do with a year-by-year accumulation of experienced employees who will not be going anywhere for five more years.

Into this simmering pot, Barclays Bank has lobbed its own curious device: a defined-contribution staff pension that will have a floor of a fifth of an individual's lifetime average income.

The proposal certainly introduces a level of security into defined-contribution pensions, which long-term should be better for workers than defined benefit, but leave the employee scarily exposed to the vagaries of the stock market.

But, while it deserves applause for bringing a touch of imagination to pensions, I think the Barclays plan is less impressive than it sounds. In practice, barring an even longer bear market than we have lived through since 2000, any self-respecting pension pot should deliver a fifth of income. That is less than a third of the long-vaunted two-thirds pension which the final-salary schemes aim to provide, as long as you work for the same employer for 40 years. So while Barclays is claiming to build a ground floor it is more of a lower basement: nice to have but probably unlikely to be needed.

There is more mileage in developing self-invested pensions, which are avowedly a wrapper round an investment fund: which is what a pension pot really is and should be seen as such.


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