Policy Exchange attacks pensions with "Help to Save"

jamesd

I wasn't apologising. If I'd meant Conservative Party rather than Conservative I'd have written that.

hyubh

kidmugsy wrote: »

But you didn't say it was "conservative" you said it was "Conservative". Shame on you.

kidmugsy wrote: »

At last! But I'd have expected your apology to be more gracious.

Er? It's a think tank set up and run by big-C Conservatives. If it were a Labour-connected think-tank you'd be droning on about 'Labour' this and 'Labour' that, chucking in a couple of Maxwell references and some vague accusation that Gordon Brown is response for the bad weather or something like that...

kidmugsy

jamesd wrote: »

I wasn't apologising. If I'd meant Conservative Party rather than Conservative I'd have written that.

Now you're being disingenuous.

jamesd

To accommodate you, earlier I changed from C to c just to be nice. What do you make of the proposal? I assume you objecting to it being seen as Conservative or Conservative party means that you don't think much of it?

Thrugelmir

jamesd wrote: »

Well, here's a bit that helps to explain some of their scare story numbers: "Using an 8% contribution ratio, a 3% real return and a 40 year contribution period". So instead of using the historic FTSE return of around 5% they throw away 40% of that. The effect of that massive reduction in returns on the pension pot size:

3%: £92,606.
5%: £152,602
5% for 50 years: £266,865

So they neatly chopped 40% off the pension pot value with their growth assumption. Which is quite interesting because: "using the 8% contribution rate, their pension pot was likely to be only around 55% of what they need to generate the target retirement income. "

Which promptly means that their whole report vanishes in a puff of hot air because historic returns pretty much match their target and the whole issue they are on about vanishes.

Then they went on to use an annuity rate of 3.6%. Which implies an inflation-linked annuity. Someone really should explain to them that the inflation-linked annuity market is so badly uncompetitive and such poor value for money that the rational choice is to buy a level annuity and invest the initial income difference. Add in any halfway decent allowance for that and what's actually happening already is sufficient to exceed their target income levels.

They didn't use a full working life, just the years from age 18 to 58, not to state pension age. So their proposal is to force someone who has a full working life to accumulate a pension pot 75% higher than the one they say is needed. Assuming they use 60% replacement income as the target, that could make retiring produce a higher income than while working, depending on how much income comes from the pension pot vs the state pension. Without allowing for the poor annuity choice.

Not sure what the people involved know about pensions but this sort of thing is very unimpressive.

At least it starts the debate. As a nation we are simply not saving enough in any form.

jamesd

It's an area of interest, but what to do about those who would be forced to have an income in retirement that's greater than their income when working? Hardly seems sensible for them to be forced to do that. I know that I don't have any desire to have 60% or my current income as my retirement income, it's far more than I need to live on. And that's not because I don't care about retirement planning, given that for many years now I've been putting away more than 60% of my income.

Thrugelmir

You are referring to the minority. Someone needs to represent the majority.

jamesd

Pensions policy needs to cover the whole range of people, not just be set to force people to pay far more than they need to because some other people don't have very full working lives.

Do you support forcing people to waste half of their pension pot, even if they die at 130 years old, by prohibiting drawing on the capital of half of it?

What's needed isn't more tinkering like this.

This doesn't even try to address the problem of those who choose not to be working and won't be accumulating any private pension while they aren't. Mostly women who opt out of the workforce. That's one area that's ripe for compulsion, in part because women pensioners also tend to be the poorest of the pensioner groups.

Some might be surprised to know that "Government rules mandate that a minimum pension income of £20,000 has to be generated before alternatives such as a drawdown can be considered" (page 27). It'd be really nice if the authors of the report showed more signs of understanding the current pension system. There's no minimum for using drawdown, other than whatever is cost-effective. £20,000 is the minimum for Flexible Drawdown, that allows taking the whole pension pot at once, not Capped Drawdown. That mistaken belief seems to be what drove them to propose allowing some equity use (pages 28-32), presumably not even realising that 100% equity use is already permitted and what they were proposing was more restrictive than what we have today.

jamesd

I've suggested that Policy Exchange withdraw this paper because of the gross factual error about what is required for drawdown, which drives a substantial part of the subsequent proposals.

Southend1

We already have compulsory auto enrolled pensions for all. They are paid for through NI contributions. This idea is simply another step towards scrapping the state pension and allowing Dave's buddies to get their grubby mitts on our retirement funds. If the state pension is inadequate then that's what needs to be addressed. The answer is not forcing everyone to gamble with their retirement through compulsory private pensions.