The insurance industry is in disarray over what its millions of customers should do about opting in or out of the State Second Pension (S2P).
The insurance industry is in disarray over what its millions of customers should do about opting in or out of the State Second Pension (S2P). That is the unavoidable conclusion of the decision by some of the biggest insurers to take issue with the advice of their trade body, the Association of British Insurers (ABI).
S2P is a supplement to the state basic pension, currently £79 a week. Although it is skewed heavily towards the lower paid and those who take career breaks, such as parents and the unemployed, those in work build up rights through making National Insurance contributions in the normal way.
However, it is voluntary: we can choose each year whether to opt into the scheme or opt out. If you opt out, the Government will put your S2P contributions into your private pension scheme.
So there is a choice: do you leave your money with the government, which is liable to change the rules as it goes along, or do you throw in your lot with a pensions industry which has shown itself to be about as reliable as a Spectator editor? A tough call indeed.
The ABI published a leaflet last month which was Delphic in its studied neutrality on the subject, other than for women over 54 and men over 60.
After those ages the government's rebate to your private pension stops rising, so you are better off being contracted in.
This, it turns out was not good enough for the likes of Norwich Union, Standard Life or the Prudential.
All have sent out the ABI leaflet with a covering letter which, to varying degrees, advises their policyholders to stick with the state scheme. The leaflet was written only after consulting the ABI's members, so the dissidents have clearly been ignored in the interests of papering over the cracks. They have then had their say in the accompanying letters.
Adrian Boulding, Legal & General's S2P guru, suggested that the dissidents were thinking of their closed with-profit funds, which have to invest mainly in gilts and therefore will probably not keep pace with the state scheme. Not so, alas. Alan Oliver, Norwich Union's head of pensions, denied this and insisted it simply reflected a more cautious view of the outlook. He also denied that it was driven by any fear of being accused of mis-selling, but there is implicitly a fear of under-performance.
Bear in mind that, by urging their policyholders to contract in, the rebels are denying themselves the premium income that would have come their way from those people contracting out.
This is a truly dismal verdict on the ability of the pensions industry to protect our savings and offer us a comfortable retirement.
In doing so, it is suggesting that these companies - among the leaders in the business, remember - expect the stock market to deliver lousy returns for years to come.
The only glimmer of joy is that, if their forecasting ability is as poor as some of their other recent talents, then it may be that they are wildly underestimating the stock market's true potential. But I wouldn't bet on it.
The upshot is that, if the rebels' advice is heeded, future governments are going to be landed with a huge S2P liability. Until one of them changes the rules yet again, of course.
* Don't invite Owen James to your Christmas party, unless you are planning a re-run of
David Brent's seasonal return to The Office.
Mr James is the consumer director of Intrum Justicia, the multi-national debt collector, and he has some helpful advice for avoiding a financial hangover next month. Helpful if you want a really grim time, that is.
Set yourself a budget, but no extras. Only buy "essential" presents. Make your own toffee and Christmas cake. And - the real David Brent touch, this - save money by talking your friends into a "secret Santa" scheme.
Or you could just pull the blanket over your head and wait until January.
Next year may belong to the Japanese
Japan: a word to strike terror into the hearts of investors. The revival of the Tokyo stock market has been predicted ever since its long bear market began more than a dozen years ago. But I have a hunch that 2005 really could be the year of the Rising Sun. I am encouraged by provocative research from Merrill Lynch Investment Managers; the most compelling point is there has been a generational shift.
A new generation of political and business leaders has taken control. They have been reared on Western influences, are less concerned about losing face and so are willing to be more flexible.
Trade union power has been reduced, legislation has made executives more responsible for their actions, and Western accountancy and tax reforms are being introduced. This is happening against a background in which the government is desperately loosening monetary policy in a bid to get the economy going again. Chances of that happening are being accelerated by growing exports to the humming workshops of China.
But the Japanese recovery will not be straightforward. Merrill describes Japan as "the ultimate cyclical stock market". The public has to be persuaded to spend again, after more than a decade of fanatical saving which has driven interest rates to zero. Management and political reforms will be a constant battle between the forces of reform and reaction.
But Japanese unit trusts are now worth tucking away.Reuse content