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Opinion: Pension future bright despite politicians’ 'short-sightedness'

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Written by: Admin | Posted 03 October 2018 16:07

Opinion: Pension future bright despite politicians’ 'short-sightedness'

Stuart Price, partner and actuary at Quantum Advisory in Bristol, on why the pension future is 'bright'

Since the first increase to workplace pension contributions six months ago, industry experts have been watching and waiting to see if there would be a surge in people opting out.

According to recent figures by Legal & General Investment Management (LGIM), which has 2.9million members in its pension scheme, it appears people haven’t been put off by the rising contributions.

It was thought the employee contribution increase from one per cent of their wages to three per cent may cause many to cease paying into their schemes.

However LGIM reported just three per cent of their members opted out in April and below two per cent in May.

These figures are extremely reassuring that auto-enrolment is working and hopefully means that more and more people understand the importance of saving for their retirement.

However, there are some individuals out there less than enthusiastic about workplace pension schemes, and people like Home Secretary Sajid Javid saying pension auto-enrolment should be scrapped if Britain fails to agree a Brexit deal doesn’t help anyone.

Read more: Why today's workers will never enjoy baby boomer pensions

The Liberal Democrats made some interesting suggestions in their recent party conference including introducing a flat rate of relief on pension contributions and limiting the amount the wealthiest can withdraw tax-free from their pension pot.

These proposals should be welcomed as they benefit the less well off when saving for a pension - and these are the people who need the most help – as well as making pensions simpler to understand and administer.

The issue with politicians and their pledges, is that they generally only focus on the short-term - as they want to get re-elected - whereas pensions need a long-term strategy.

A strong pension outlook may also require some uncomfortable decisions along the way, such as including everyone in auto-enrolment and increasing minimum contribution rates further, but politicians are unlikely to implement these for fear of a public backlash.

Looking on the bright side, the LGIM figures suggest people are listening to the warnings coming from the industry that, in order to enjoy a comfortable retirement, they themselves need to save for it. Hopefully saving for retirement is becoming ‘the norm’ and will soon become second nature.

It will be interesting to see what happens following the pension contributions increase in April next year, when people will have to pay five per cent of their pay, both in terms of opt-out figures and also what the politicians propose to do next.

 

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