Political Ramblings & The Pensions Debacle - Ray Prince

They say (whoever 'they' are) that you shouldn't talk about politics and religion as it can be easy to offend and end up in an endless debate.

Well, forget that today.

Today I want to talk about the inability of some politicians to listen to the people that voted for them in the first place.

As well as their inability to listen to those at the coalface prior to making huge changes that affect those very people. 

Namely you and I.

If you're a dentist, you'll know what I'm talking about. I'm not going to use dentistry as an example here though as there are many people more qualified than me to speak on the subject of the new contract etc.

Let's think of something I have first hand experience of…

In 2001 Stakeholder Pensions were launched with much fanfare.  The UK Government wanted to encourage those in the lower income bracket to save more money towards their retirement (a good initiative). They decided, after much consultation, that one of the main reasons this target group of the population were not investing in personal pension schemes was because the charges were too high.

The Govt decided to cap charges at 1% pa and it was a requirement that all employers who employed 5 or more staff had to offer their employees access to a Stakeholder scheme if they did not have an alternative in place.

Crucially, it was not a requirement for employers to pay into the scheme on behalf of the employee.    

Now, one good thing to come out of Stakeholder pensions was that it forced pension providers to offer better products as the market became more competitive. As a result, some of the high charging companies were squeezed out of the market.

Here's an excerpt from The Guardian website in August 2001:

The treasury and the inland revenue are fans. The Institute for Public Policy Research think tank thinks the move towards stakeholder pensions is "basically in a muddle". The former welfare minister, Frank Field, says that middle income earners may not be the real beneficiaries. Instead, wealthy people who set them up as tax-free savings vehicles for their families might be the biggest gainers.  

Click here for more on Stakeholder pensions

One of the main points I am trying to make here is that many pension experts warned the Govt that Stakeholders would not reach their intended market. After all, if you are a low earner, why would you now jump at the chance to invest in a pension just because the charges are lower?

Maybe these people are not investing because they can't afford it or just lack the education to make the decision?

Then there is means testing, which basically means you could invest £X into a Stakeholder pension (or any type of pension) and then find out when you retire that the amount of state pension you are entitled to is reduced by the amount you are in receipt from the private scheme.

The 'success' of Stakeholder pensions is hardly talked about by Govt now. In fact, the new Pension Personal Accounts that are being introduced in 2012 are today's news.

The question is…

Will they listen?

(If you've got time on your hands you can read more here or here)