People Need Good Pensions, Don’t They?
Posted: 22/01/2014 | Author: The Political Idealist | Filed under: Uncategorized | Tags: activist shareholders, automatic enrolment, business, Conservatives, economic democracy, nest, pensions, savings, social justice |Leave a comment »Automatic enrolment will be a familiar term to those of working age who benefit from a permanent employment contract. The inadequacy of individual and workplace pensions, a problem created by deregulation in the 80s and 90s and exacerbated by demographic factors, eventually provoked three policy responses: the hiking of the state pension age, first to 68 and now probably to 70; the introduction of NEST (a state-backed pension fund designed to use economies of scale and simplicity to attract savers); and the roll-out of automatic enrolment.
Statute now requires that employees are automatically ‘opted in’ to saving 4% of their income towards their pension. More often than not, the sum is invested with NEST. The sweetener is that their employer adds 3%, and the government 1%, so that most people are saving 8% of their income towards their retirement. In one respect, the policy is proving a success: few people are foolhardy enough to actively opt out of saving, particularly when their money is doubled instantly. However, the pensions system will never be up to scratch as long as it fails to provide a decent income to workers upon their retirement. There are tens of millions for which saving 8% of their income will not cut it, even with a state pension of £7,000 a year. Financial advisers say that an extra £9,000 to £14,000 is needed from other sources.
Some elements of the Conservative Party realise this, and are leaning on the Chancellor to expand automatic enrolment contribution by half to 12% total contributions, with 6% from the employee. I don’t claim to be an expert, but with compound returns that will more than double workers’ pension pots, in most cases to agreeable levels. George Osborne, it is rumoured, is likely to support this, but not the second proposal, to make enrolment compulsory. That would be seen as an effective tax increase. What could be more politically unhelpful when he is portraying his opponents as big spending, high taxing incompetents?
However, there will be some who feel that they need their 6% now and cannot afford investment in their distant futures. These tend to be the very people who already live in poverty at work and do so at home. It’s a tricky dilemma, but there could be mechanisms put in place to suspend contributions for short periods in the event of crisis, for example: it’s not all or nothing.
However we get Britain making decent investment in its pensions, we need to turn to where said investments are made. Pension funds have unparalleled financial firepower and attention should be given to how such power could be placed under democratic, not corporate control. Pension funds can unlock long term investments, such as renewable energy projects, that are otherwise not viable without government subsidy. Pension funds, as huge shareholders, have a responsibility to act as responsible and active owners. Pension funds can revolutionise the economy along co-operative principles, if they are used properly. Get the country saving and we can get it moving too.
