Should pensions be compulsory?

EdInvestor

Since it's a bit quiet around here, thought I'd ask what others think as it seems Mr Blunkett will be out and about seeking input on this soon

My view is they already are, since you are forced to pay NI contributions which entitle you to the basic state pension plus the state second pension (S2P). You don't get these pensions if you don't pay NI (though these days you can get credits for the NI if you're a SAHM/carer, etc.)

Given this existing compulsion, possibly it's more important to focus on saving to buy a house in the early years?

Views?

dunstonh

There is a lack of responsibility that has been creeping into British society which needs to be addressed by some means or another. Whether this is social responsibility or financial responsibility.

Personally, I dont think the Govt should get involved in things it doesnt need to and it currently sticks its nose in, in far too many places. However, retirement planning is something that does need to be addressed.

A simple advertising style campaign pointing out to people the consequences of no action and the reality of the situation could do for starters. Education to 15+ year olds wouldnt go amiss. Phased removal of the pension credit for those that are approaching retirement (i.e. none for those that are 20 years away or more). Means test the state pension (but at a fairly high level. Say those that have their own arrangements that produce more than the average wage and make it a phased reduction so its not an on/off benefit). Make the Govt supperannuation (and associated schemes) a little more expensive on contributions and force compulsary membership on all occupational pension schemes. Anyone not in an occ scheme that is available to them almost certainly needs their heads testing anyway and the benefits are far cheaper than getting the same on private arrangements.

Then, if more action is needed, consider compulsion. However, as i understand it, the Australian model, which we do tend to match in other areas, is classed as a failure.

If its a stupid level like 1-2% of salary, then this will not benefit those that need it the most. It needs to be up at 5% to make any impact. Although a 5% increase in the basic rate of tax would do the same job and we have had more than that in equivalent tax raises since Labour came to power in 97.

dunstonh

Private pension plans are not much better. The returns and growth of the pensions pot is exceedingly poor

I disagree on that point. The performance is as good as the investments you choose. I havent fallen below an average of 10%p.a. for a long long time.

A pension is just a wrapper like an ISA or unit trust. Its what is inside that wrapper that matters.

You also have to be wary of including short term reductions/drops following a stockmarket crash. In a long term regular saving product, having periodic crashes is a great thing to happen. You get to buy those units so much cheaper.

Debt_Free_Chick

Editor wrote:

My view is they already are, since you are forced to pay NI contributions which entitle you to the basic state pension plus the state second pension (S2P).

This statement, alone, convinces me that private pension provision, in addition to the paltry state pension, should be compulsory.

dougk_2

Just my thoughts , but if there was a non-profit making organsation (In theory the government) and the money was invested for the invidual in the same way as a profit making pension company does then would we all not be better off, wiyth nothing being creamed off by shareholders etc? In fact same goes for every service and utility - but some how as soon as something is run by the "public service" everything becomes loss making and over-managed..... why?

If pensions were mde compulsory would it not mean that more people would need to claim benfit as they would not be able to pay this extra "tax" as they would see it?

roger56

Yes pensions should be compulsary. To a degree pensions are anyway as we all have to pay NI if we work. They should also be consistent for all, not the lottery they tend to be at the moment.

If you're able to work and provide for yourself you shouldn't expect someone else to work and hand over money but......
exceptions are illness and disability.
and I also believe in a living wage for anyone who works.

dougk's idea of a non profit making company is sensible.

It's along the lines of EBICO for gas/elec:
http://www.ebico.co.uk/about.htm

[Deleted User]

It's pension EDUCATION that should be compulsory. Starting in the schools maybe (along with other non biased, basic financial education).

As soon as someone starts work it should mandatory that they are given information - in PLAIN ENGLISH and in a simplified form about pension options.

Who pays for this? Well erm... I dunno.

Like many people, I find pensions boring, confusing, too complicated and too far in the future to worry about NOW.

How does this get redressed? By making it an EVERYDAY topic in a form that the average person can identify with - and not just a subject for the men (or women) in suits.

I'm lucky. I was 'forced' to join a pension scheme when I started work at 16. 16 is an age when absolutely nobody thinks abouts pensions, let alone knows what one is!!

Had I not been 'forced' into it - I doubt I would have one now - or would have kept it going.

I think the key question is always going to be - could you live on £x (whatever the state pension is per week) and if not - what do you do about it?

I think being 'forced' into a pension has done me great favour. Because I never had the money in the first place (which was being deducted from my pay) I've never missed it.

Maybe this is the way forward for the next generation of school leavers onwards. Others being forced into pension saving may not be able to afford it.

EdInvestor

Weyres wrote:

Personally, I'm not in favour of compulsory pensions, although I am a fan of money saving, especially for retirement.The question is, may we actually be better off saving and investing for our retirement ourselves, rather than being forced to pay into idealistic 'funds' that we have no control over?

I thought this was an interesting point.

Do Moneysavers feel it's best to keep control over their savings/investments? There's a poster on another thread who says she is a spendthrift and can't trust herself to save.

Is this common? Does it matter? Should such a person "save" in a different way ( eg by buying a house?) rather than investing via "the system"?

isasmurf

Everybody should save for retirement, but pensions should not be compulsory. Some people are saving for retirement, but (rather foolishly IMO) in other forms, such as property, their own business, other investments, etc. As long as you are saving in some form for a pension at least you are going some way to been responsible.

We should go some way to compulsory pensions, but not the whole way. Currently every employer with more than 5 employees has to make a pension scheme available. We should take this further, and say that every employee in these companies are automatically enrolled in these pension schemes. However, the employee can opt out if they so wish. With the apathy of the British public I would think very few would actually opt out.

dunstonh

dougk's idea of a non profit making company is sensible.

Not really. We would see an increase in charges on the pension plans compared to what is available now. You would also be limiting your investment options as a non profit company is going to focus on the low budget end.

Do Moneysavers feel it's best to keep control over their savings/investments?

I do. Just because its in a pension wrapper doesnt mean i have any less control over where i invest it. It just means i have to take the maturity in a certain way.

There is no difference to investing in an ISA compared with investing in a pension. The same funds are available, the same investment sectors. Indeed nowadays even more areas are available. It is a very common error to mix up pensions and the areas where the investment is.

In addition, people look at these things too short term. We have had a stockmarket crash and in theory people should have been pushing extra money in to benefit from this. Instead, they whinge about performance without understanding why and then go off and buy to let and call that their pension instead. It will go full circle when property prices drop and repossessions start again and people will see the stockmarket as the place to be and the cycle begins again.

EdInvestor

Quote:

Do Moneysavers feel it's best to keep control over their savings/investments?

I do. Just because its in a pension wrapper doesnt mean i have any less control over where i invest it.


That wasn't quite the type of control I meant With a pension, you lose control of how you want to spend the money you've saved: you can only take 25% of the accumulated fund as a lump sum, the rest has to be taken as a yearly income with a maximum of about 6-8% p.a. depending on age. Even if you don't give up the capital by buying an annuity, it's still difficult to leave it to your heirs after the age of 75.

Are these restrictions worth it for the reward of getting 25% of the fund free of tax ?