William Kay: Where will your pension take you in retirement: Margate or Malibu?
Saturday 09 October 2004
In the next few weeks, millions of people are going to receive a colourful little leaflet full of happy, smiling faces.
In the next few weeks, millions of people are going to receive a colourful little leaflet full of happy, smiling faces. Some of the faces in the photographs are not smiling, however: they are probably the ones who have bothered to read the accompanying words.
For this is a wake-up call from the Association of British Insurers (ABI) about whether those in private pension schemes should opt in or out of the State Second Pension, S2P. And if your eyes were glazing over as you read that last sentence, I can tell you that I nearly fell asleep writing it.
But I'll try to stay awake, if you will. The decision, which you can change every year, if you are so inclined, could make quite a difference to whether you can afford to take a break in Margate or Malibu when you have retired.
Until last year there was a good case for opting out of S2P, as the government then lobbed an extra 2 per cent or so in with the contribution it would transfer to your private scheme.
That was because Margaret Thatcher's administration wanted to push as much work as possible over to the private sector. But Gordon Brown, the present Chancellor, saw no reason why people in private schemes should get a free handout for forsaking S2P. So there is now no obvious gain from switching: it is all about who you want managing your money, and the chances of either the Department for Work and Pensions or your own scheme either changing their rules, or simply doing a better job.
Aside from the Margate-Malibu consideration, the state system is more rigid than its private counterpart. You cannot start collecting a state pension until you are 60 if you are female, 65 for males. You cannot, as with private schemes, take a quarter of your pension pot as a lump sum. If you die before you take your pension, your spouse may qualify for half your S2P, but if you are merely co-habiting, your partner gets nothing from the state.
This sounds as if all the advantages are in favour of opting out and putting your S2P money into either a personal or an occupational pension. But the big question, which probably outweighs all the foregoing, is which choice will give you the bigger pot. Governments have a habit of tinkering with the state pension, and next week's Turner Report will be designed to spark yet another debate on the whole question, just as a Pensions Bill is going through Parliament.
So, if you have decades to go, you could end up with something very different from what is on offer now. On the other hand, pension providers, who tend to be the very same people who produced the endowment and with-profits debacles, are not exactly an inspiring bunch to entrust with a penny more than you have to.
Adrian Boulding, Legal & General's pensions expert, says we should not even try to predict the outcome and instead confine ourselves to where we are most comfortable keeping our money.
The exceptions to this are women over 54 and men over 60. Mr Brown has decided not to increase the opting-out contribution beyond those ages, so it increasingly pays people to opt into S2P, once they reach those ages. But even here we are talking about marginal differences over the last five years of working lives.
So it's the capricious state or the fumbling fund managers: unless you have a political agenda to guide you towards or away from one side or the other, you might as well toss a coin.
Customs must do its duty and raise the limit
Customs officers at Manchester airport must have been rubbing their hands this week when Wayne Rooney's fiancée, Coleen McLoughlin, above, walked through the green channel, claiming to have nothing to declare. With the fruits of an £11,000 New York shopping spree in her luggage, Ms McLoughlin clearly hadn't looked beyond the alcohol, tobacco and perfume quotas, and the story gave Customs welcome publicity for the fact that all shopping from outside the European Union is subject to duty-free limits. But it raised the question of why we have a mean, outdated threshold of £145. It has not been increased since 1996, and then by only £9. I know limits are widely ignored, but let's recognise reality and lift it to £200, pronto.
Health insurance for the less healthy
The Prudential is not the first to reward good behaviour with lower insurance premiums, but its new PruHealth policy takes the principle further than ever before.
It is offering to waive one year's private medical insurance premium for those who earn enough points by regular gym visits, improving health education, going for health screenings, stopping smoking, having a flu jab, taking brisk walks and downloading healthy meal planners from the PruHealth website.
The Pru has lined up discounts on gym membership as a carrot.
The regime sounds exhausting to me, and is likely to trigger plenty of claims for stress counselling, if not stress fractures.
But this whole business of rewarding careful policyholders started with motorists and the no-claims bonus, so let's take a few more leaves out of the car insurance rule book.
The PruHealth policy is the medical insurance equivalent of Esure, the insurer which is skewed towards safe drivers who hardly make a claim.
So why not launch a counterpart of Esure's sister company, First Alternative? This is the one that caters for dodgy or aged drivers with dodgy or aged cars, as well as journalists, estate agents and others in unsavoury occupations.
That sounds much more my cup of tea: a medical insurance policy that rewards smoking, drinking, indolence and general backsliding, with a bonus for being a scribbler.
Only, as with PruHealth, just don't even think of making a claim.
Simply hand over your premiums and enjoy the nice, warm feeling of being covered.
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