On Monday 29 June, Ruth Kelly appeared before the Treasury Select Committe and was accused of gross complacency by David Heathcoat-Amory and others, mostly because her solution to fixing the failure of Stakeholder pensions is to make them more expensive so that more people will buy them! Of course she is also means testing the very people she is trying to encourage to save. As described here pension saving for the less well off (Gordon Brown has promised that this will reach 50% of the populationa! Must find cite/site for that) is a really bad deal.
James Daley in the Independent (No link as read via FT.com archive) pointed out the desirability of fixing the incentivisation for the lower incomed but this does not seem to be on the government agenda. On the other hand the pension reforms that will reduce the number of different tax schemes from 8 to 6 will switch annual contribution limits from roughly 15% to 100% of salary which is great for the well incentivised, even if the system will still be so complicated that advice will be needed to navigate it. That makes things even better for top rate tax payers.
David Willets talked some sense about means testing and risk management, although economically naive I fear and he seems to be another victim of annuity phobia. Different views of his talk here
and here. The latter will disappear behind a veil soon so here is the best bit:
Two Brains says that annuities lie at the core of the pensions crisis and that uncertainty over life expectancy makes them look unattractive to institutions and individuals alike. And annuities are unattractive because the incomes delivered are fixed according primarily to the income paid on government bonds at the time of purchase. Since no one can know for sure how long they will live, they cannot make an informed decision about whether it is wise to swap a lump sum for a lifetime of income.If an individual lives for 25 years after retirement it can be assumed almost any annuity represents a good deal. If you live 25 days, it will not. The fact that annuity purchase is often compulsory does nothing to endear the instruments to the public.
Willets also says that the pension crisis is as serious as terrorism and global warming. I think it is too but I see the crisis in a different place. He sees the problem couched in terms of people managing to attain an incme two thirds their final salary from the age of 65. I see it as failing to prepare for the burden of keeping the poor an aged in decent conditions. That's cliches for you.
One James Bartholomew in a splenetic rant in the Telegraph, despite calling the Financial Times "statist" and thinking that the Labour Party not ending means testing or restoring the earinings link is more blameworthy than those doing away with them in the first place, manages to point out the seriousness of the shortcomings of government pension policy. He doesn't really talk about how to fund a better alternative.
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