Pension Policy Moving in Wrong Direction – FT Letter – Ros Altmann

    Ros is a leading authority on both private and state pensions,annuities and
    retirement policy. Numerous major awards have recognised her work to
    demystify finance and make pensions work better for people.

  • Ros Altmann

    Ros Altmann

    Pension Policy Moving in Wrong Direction – FT Letter

    Pension Policy Moving in Wrong Direction – FT Letter

    Policy Moving in Wrong Direction – FT Letter

    by Dr. Ros Altmann

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    confusion about pension issues continues. Your leader ‘Pensioning
    off Company Schemes’ (Aug 11) and Nicolas Higgins’ reply
    (Aug 13) fail to tackle the big picture. Private sector pensions
    have become too expensive, because pensions were never designed
    to last so long. As individuals start work later, expect to retire
    earlier, live much longer, and interest rates fall, the cost of
    old age support has soared.

    is inevitable that final salary promises will have to change and
    the sooner scheme members are warned about the reality, the better.
    To claim that insurance protection of pension rights is too burdensome
    is missing the point completely. If companies cannot afford insurance,
    how can they afford the pension promises? If they cannot afford
    the pension promises, why are they making them – and who is explaining
    this to members?

    of course, it has to be the taxpayer that picks up the pieces. Either
    this will be by underwriting private sector schemes or by paying
    higher State pensions. The rest of Europe is forecasting huge rises
    in Government expenditure on pensions, due to the ageing population.
    However, the UK Treasury expects that our pension spending will
    remain around 5-6% of GDP for the next 40 years. This is politically
    impossible, given the decline in occupational and private contributions
    which is occurring. The sooner we wake up to reality the better.

    fact is that the UK pension system must change, or we are heading
    for much more poverty and lower growth. The ‘pensions crisis’
    which has so far been denied by Government, will have to be addressed
    soon. The bottom line is that Government policy is relying on occupational
    and private pensions to finance a 40% rise in pensioner numbers,
    whereas companies and individuals simply cannot afford this. Our
    final salary schemes are buckling under the weight of legal, regulatory,
    demographic and asset price changes which have been thrust upon
    them in past years. Surpluses, which should have been left to build
    up to pay pensions in young funded schemes, were raided by Governments
    and employers. Scheme members have been promised generous pensions,
    official safety nets were put in place to protect pension rights
    (MFR, regulators, trustees) but most companies can no longer afford
    the promises they have made and the safety nets are full of holes.
    Pension costs have escalated way beyond those originally envisaged
    by employers. As schemes have become mature and market moves have
    exposed the folly of over-reliance on equities, all parties must
    wake up to the enormity of the problem. Shareholders are starting
    to focus on these open-ended liabilities. Average job tenure is
    around 5 years, but pensions often now need to be paid for 30 years.
    When these schemes started, the numbers were the other way round!

    seem to be driving pension policy forward, by looking in the rear
    view mirror. We must change with the times. Until we reform the
    State pension system, incentivise pension contributions properly
    and encourage gradual retirement, we will not make any headway.
    Clear vision is long overdue.


    Dr. Ros Altmann
    Governor, London School of Economics

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