ARPO50: Concerns over state pensions

Question: What are ARPO50's key concerns about pensions?

John Ball: The key issue that comes up with our members is means testing. They are not at all happy with means testing and would much prefer the basic pension to be at least at the level of the guaranteed minimum income.

Question: What is your reaction to moves towards a means tested state pension?

John Ball: The government in the 1997 election promised to get rid of pensioner poverty and the only way to do that quickly was by means testing.

You might say that they have done what they promised, but now it is time to move on and start looking to the future rather than addressing the short term issue of poverty.

They have pretty much done everything that can be done about pensioner poverty if the truth be told. The guaranteed minimum income is close to the poverty level, people get extra benefits on top of that if they are living in rented accommodation.

With Council Tax Benefit, help for the disabled, free prescriptions and cut price travel there is a comprehensive programme in place to ensure no pensioner should live in poverty.

In so far as it is possible for a government to find a solution to the problem of pensioner poverty the present one has gone a long way towards it.

So it is time to move on and this means reducing means testing to give people an incentive to save for the future. There is really very little incentive at the moment for anybody to put any money in a pension scheme if they know they are going to be taxed at forty per cent when they draw it out, which is effectively what the pension credit does.

Question: Has ARPO50 been campaigning on this?

John Ball: ARPO50 has raised this with ministers, it has been raised in the Labour Big Conversation, we have had letters in the press and at every possible appropriate opportunity we do raise the issue. We are one of a number of groups that are saying rather similar things.

I think the message is getting through. The prime minister has commissioned a review of pensions and, at least according to the Sunday Times, one of the recommendations is that basic pension should be put up to the level of the guaranteed minimum income. So, the word is getting round and I think we have contributed to that.

Question: Do you welcome the prime minister's review of pensions?

John Ball: It is nice to know that he is actually taking the issue seriously because in the past the pensions debate has been mainly a Treasury led exercise and the Treasury will always be trying to economise.

It is really time to think more about the future and less of the short term. Rather sadly, in the first speech of the new work and pensions secretary, Alan Johnson, the big ideas were increasing the number of member trustees of pension schemes from 30 per cent to 50 per cent and not increasing the state pensioner age.

If we are talking long term neither of those things are going to encourage employers to put more money in a pension scheme, or indeed, open a pension scheme if they don’t have one.

There is huge confusion. We really do need to look to the future because all this concentration on the short term isn’t helping.

Everyone knows about the stakeholder problems. Few workers are now investing their money, and this is quite rational behaviour by the workers because why on earth should you put your money into a pension when you know that you are not going to get very much out at the end of the day.

Question: What is your advice to people who are looking to invest in pension schemes but are wary following the recent stakeholder pension problems?

John Ball: If they have a good employer sponsored scheme then it is probably very well worth investing in a pension because of the employer contribution.

If it is a case of someone saving for a stakeholder pension on their own account and they haven’t got an awful lot of money I would say think very carefully before putting any money in a pension. It is difficult to generalise.

Clearly occupational pensions are a good thing, particular in the public sector and people with a good occupational scheme available might be quite foolish not to join it, but once you get away from that one really needs to be extremely careful in saying anything because for many people putting money in a pension would be silly.

The old presumption that getting a pension is a good thing for everybody doesn’t really apply if you are going to be taxed at such a high rate when you draw it out.

Question: What about young people – are there other alternatives out there to prepare for old age rather than invest in a pension scheme?

John Ball: I would encourage people to pay off their mortgage before they do anything else because the interest on the mortgage is likely to be higher than any probable rate of return on a pension scheme or other investment.

Question: What would you say to older people who want to know who is going to be looking after their financial security? It has been suggested recently that a typical employee's savings are £50,000 short for a comfortable retirement.

John Ball: ARPO50 would encourage people to save if they are likely to be above the pension credit levels.

It is worrying that people may not in all cases have enough money to rely on good pensions. The problem is by the time people are approaching pension age it is a wee bit late to do anything about it. The ideal is to get proper financial advice from a financial advisor.

Of course, there is difficulty in generalising. If somebody is going to end up with an income comfortably above the pension credit, extra saving is clearly a good thing because they should get a reasonable return on it and more security in their old age.

If somebody is likely to end up on the pension credit it is doubtful if it would be sensible to put money in a pension. They would need to think long and hard.

One thing that we would recommend is that people who are getting older should ensure that their accommodation is in really good order and suitable for their needs and consumer durables such as cars, washing machines and so on are in relatively good order. These are not taken into account in the means test. You can have a brand new car and it is ignored when you are means tested, but have, say, £10,000 in the bank and it is taken into account.

If we are talking about what to do about moderate amounts of money there are better things to do than stick it in a pension.

Question: Is the gender pensions gap as real as the gender pay gap?

John Ball: So far as I am aware it is actually worse because not only do women generally still earn less than men, but they also have shorter working lifetimes.

So yes, under present circumstances it is almost inevitable that women’s pensions are less than men’s, even though, quite interestingly, in the past women were more likely to have joined pension schemes than men when things such as level of earnings and occupation are allowed for.

The only possible solution is for government to compensate women for being mothers, which used to happen very generously in the past. Under SERPS a mother could get a full pension for 20 years contributions. In 2000 the government increased the requirement to 44 years under state second pension.

Question: What are you hoping to see ARPO50 achieve over the next few years?

John Ball: The short term hope on pensions in particular is the increase in the non-means tested basic state pension.

In the medium term we would hope to be consulted about some more flexibility in retirement.

In the face of ever increasing longevity hopefully there will be a large consultation about more flexibility. After the increase in basic retirement pension this is the next thing we would be after.

But I can not see any of this happening very quickly. It is difficult for politicians because when you look at pensions there is not really much good news.

The state pension has been cut to the bone. Private pensions are a bit shaky. Public sector pensions, we read in the Economist, are worth over half of GDP and are therefore unaffordable.

Wherever you look it is bad news so it is difficult to see a very quick resolution to the problems.

For example, in 2003 this government appointed Adair Turner, a leading academic economist and businessman, to review the need for more compulsory contributions to pension schemes. He was instructed to report with conclusions after the election.

The slow reporting period is indicative of the difficulty for politicians of seeing anything politically attractive coming out of the review.