Industry blog
August 2007A rose-tinted future?
28 August 2007
The pensions commission proved that we in the UK are not saving enough for our retirement. But has that message really hit home with the UK public? The answer appears to be no. AEGON has recently done some research that has revealed a frightening ‘reality gap’ between the income people are expecting in their retirement and what they are actively saving for.
The key finding of the report revealed the population is split down the middle in their attitude to saving. 54% of those surveyed say they plan for the future, while 46% admitted they live for today. This backs up the general view that people are not really considering how they will fund their retirement. Maybe putting it in the box marked ‘too difficult to think about’. Instead, they are living for the moment; and there is evidence they are borrowing bigger amounts on their mortgage to fund their spending habits.
Although 53% said they would need an income of between £10,000 and £20,000 to have a comfortable lifestyle, only 37% said they were on track for their target income. And 20% admitted they had no long-term savings at all.
The Government has a formidable task on its hands. Simply introducing a mechanism to save through pensions reform and auto-enrolment isn’t enough. Instead it has to change the savings culture in the UK, so that more people are willing to put money aside for their old age.
And that’s the tricky bit. But without it, there’s a danger pensions reform will fail to encourage more people to save more money, and instead people won’t take off their rose-tinted spectacles to see their future income as it truly is.
Rachel Vahey
Head of Pensions Development
A challenging role?
5 October 2007
My ‘Blackpool Conservative Party Conference experience’ was summed up by a woman in a white towelling bathrobe standing outside Blackpool’s finest hotel and conference venue whilst suit-clad delegates swarmed by. She had been for an early morning dip in the Irish Sea, and had forgotten her pass. In summary, it was all slightly bizarre and incredibly security conscious.
This was the first party conference I had ever attended, and I was curious to see how important a rating financial services, and pensions in particular, received. The answer was: surprisingly high.
I was also keen to get the Tory viewpoint on pensions reform. In a fringe meeting, the shadow work and pensions minister, Chris Grayling, shared that they broadly agreed with the general thrust of pension reform, but had some areas of concern.
One of these was the interaction between pension saving in general and means-testing in retirement. Grayling wanted to find a solution to this, to send out the clear message to people it was worth their while saving. Another area was the evolution of the framework, and the worry that the personal accounts delivery authority would turn into a gigantic government quango.
Unless these areas were addressed, Grayling said, cross-party consensus on pensions reform wouldn’t last, and he would be looking for answers this winter.
And with election fever in the air, what would he do if by November he was the Secretary of State? He said wouldn’t rip up proposals and start again, instead modifying current plans.
I’m already looking forward to the party conference season next year. It’s a great opportunity to hear the experts and quiz politicians on their intentions. Hopefully, next year, it will be a little more familiar, and so less bizarre!
Rachel Vahey
Head of Pensions Development
Postcards from Bournemouth
1 October 2007
The media coverage of Labour's annual conference in Bournemouth focused on election timing. Away from hotel bar gossip though there was a host of serious policy-focused events.
There was plenty of discussion about financial inclusion and financial capability, and it was encouraging that the review of generic financial advice, headed by AEGON's UK Chief Executive Otto Thoresen, was very much on the radar.
Pension reform was also high on the agenda. The introduction of auto-enrolment from 2012 will have a profound impact on the pension landscape. Although it’s supported across the political spectrum and by the vast majority of the pensions industry, there are still plenty of details to thrash out.
Higher employee take-up of existing schemes will obviously mean higher costs for employers. There is a risk that many employers will reduce their pension contributions to offset this. Research by Deloitte suggests that through a combination of closure and reduction in contributions, more than three-quarters of existing schemes could be affected. The Government insists it is taking this issue seriously, but it would be reassuring if it produced more convincing research of its own into likely employer responses.
Equally, we need a much better understanding of how individuals, especially those in the target group for personal accounts, low and medium-earning employees who do not currently have access to a pension scheme, will behave. Only with this knowledge can we make sure personal accounts are targeted correctly.
Discussion at Bournemouth didn’t suggest we were any closer to the answers. But, there was some encouragement from Pensions Minister, Mike O'Brien, when he confirmed these issues were on his agenda.
Mark Stockwell
Important note
This blog provides the views of our industry lobbying team. The views are the opinion of the person writing the entry of the blog and don't necessarily represent the views of AEGON in the UK. They are based on their interpretation of industry developments and their current understanding of UK proposed and actual legislation, and should not be interpreted as recommendations or advice.
