How the UK tackles the impending pension crisis is now a major topic of discussion. But will anyone have the guts to fix it in 2005? In the first of a two-part series, Joanne Segars, banking career career finance in insurance opportunity opportunity
insurance firms, outlines the industry’s priorities for the New Year.

2004 was a year in which pensions and savings were higher on the public agenda than ever before.

As we begin the New Year, it’s important this continues: Britain faces a 27bn annual savings gap, and closing it needs to be a national priority. But it is not helped by the following trends:

• 12 million people are either not saving at all, or not saving enough for their old age, according to estimates from The Pensions Commission

• State pensions continue to decline in value, forcing more and more people into means testing

• Meanwhile, employers are continuing to withdraw from pension provision. Defined benefit schemes are being closed to new employees and estate finance hill in insurance investment irwin mcgraw real series
  schemes have much lower levels of available car finance insurance quote

• More than two thirds of finance or insurance or real estate pension schemes remain “empty boxes” without a single contribution or scheme member.

So the savings gap is getting larger, not smaller and without concerted action, the situation will get still worse.

Some progress was made in 2004: the Pensions and Finance Acts have introduced some long-overdue scheme simplifications, and some much-welcomed protections for scheme members.

For example, the Pension Protection Fund (PPF) will provide some new protection for members of private sector defined benefit schemes, where the employer is insolvent and the scheme is under-funded.

More importantly, it may help to restore confidence in occupational pensions. One in four people say the PPF will help increase their trust in pensions, according to ABI research.

And we have seen bold moves to combine nine pensions tax regimes into one, meaning that for the vast majority of people, tax will not be a factor when it comes to saving in a pension.

There’s a lot of work to be done to implement these changes for 2006 and the industry is working very hard because we recognise that the ultimate prize of a simple tax regime is one worth working for.

There is scope to make the voluntary system work better Joanne Segars

But by themselves, these changes will not be enough to close the savings gap by anything like enough.

That’s why for the ABI, the highlight of the pensions scene in 2004 was the Pensions Commission’s first report.

Quite rightly it says we cannot simply keep “muddling through” with sticking-plaster solutions to our pension problems.

We also agree with the Commission’s conclusion that there are no easy answers and that without sustainable long-term fixes we will face a very serious pensions’ crisis in 15 or so years’ time.

The Commission’s second report, which we hope will contain some proposals for radical policy changes, will also dominate the pensions landscape this year.

Year of big changes

So, 2005 could be a year of big changes. Whether that will be a revitalisation of voluntarism, or a move to full-scale compulsion remains to be seen.

But the insurance industry believes that there is scope to make the voluntary system work better, and in a way that means more retirement savings for more people.

So if we were granted three New Year’s wishes to get the voluntary pensions system working again, what would they be?

State pension reform: The Government has rightly done much to help today’s poorest pensioners. But the current complex mix of state pension benefits doesn’t work for tomorrow’s pensioners. It sends mixed messages to consumers who simply do not know whether it is in their best interests to save.

So the need for state pension reform is urgent and the message must be simple: it pays to save. We want to see a bigger second state pension that would reward the lowest earners combined with incentives to encourage those who can save to do so.

Employers’ role: Put employers at the centre of pension provision. Like the Employer Task Force, the ABI believes that pensions work best when there is active employer engagement. We know that a modest employer contribution results in a dramatic increase in scheme membership. But we also recognise making contributions is not easy, especially for small employers.

That is why we’ve proposed a Pension Contribution Tax Credit (PCTC) - a fiscal incentive for employers to contribute towards employees’ pensions. Our research shows that employers would respond well to such an incentive.

Encourage savings: It is essential that the government and industry work together not just to raise awareness of the importance of saving for retirement but also to highlight the risks of not saving. The ABI recommends that the government and the FSA should provide clear information, showing both the benefits of saving and the risks of not saving.

Next week, the Trades Union Congress (TUC) outlines views on how the UK should tackle the pensions crisis.