Pensions system: A 'bad boss'

Ricky Gervais of comedy "The Office": An example of a bad boss

Analysis
By Gordon Lishman Director General of Age Concern England

On Tuesday, the government will unveil its green paper on pensions reform. Ahead of its announcement, the head of Age Concern warns the government against playing 'political football' with the issue.

Most of us have had experience of a bad boss.

The bad boss is inflexible, and keeps changing the rules so that you never know where you stand.

We're becoming nation of dismal savers

Gordon Lishman, Age Concern

However hard you try there is no guarantee the bad boss will reward you fairly or adequately, or whether they will reward you at all.

The failings of a bad boss are a pretty close match for the failings of the pensions system.

Dismal savers

First of all, before you even choose your pension scheme, it's up to you to figure out the rules.

They're a nightmare to understand, and governments and providers keep changing them.

If you do save into a pension scheme, there's a chance that when you come to retire the fund manager will turn around and say, "Sorry, I've had a lean couple of years, I'm going to have to halve your income for the rest of your life."

Or if you do save enough to scrape by on, you'll be punished: you'll miss out on means-tested benefits.

The system needs fixing and soon

Faced with this prospect, it's no wonder that many younger people just decide to take their money and run - either all the way to the building society for a whopping mortgage or down the shops for a spree.

We're becoming nation of dismal savers.

A quarter of us have no savings at all. Half of us have savings of less than £1,500.

Half of us aren't saving enough into pensions to receive half our salary when we retire.

The system needs fixing and soon.

One in two pensioners lives on an inadequate income.

If younger people are not to repeat the experience they need to have the confidence to start saving for a pension now.

Five pension tests

We will be judging the Government's Green Paper on five tests which we believe would help restore people's faith in pensions and inspire them to save.

For starters people need a clear idea of how much they need to save. So the first test is whether the Green Paper sets a target for an adequate income in retirement.

Our research shows that older people need at least £100 a week to avoid poverty, more like £160 a week to have anything you'd call a decent lifestyle - and that's if they're home-owners.

The foundation of the system must remain the state pension

The second test is to do with fairness: will the proposals allow equal opportunity to all - including low earners, carers, and people with disabilities - to build up a decent pension?

It also means looking at the different ways different individuals could be encouraged to save without making them pay into schemes that are unsuitable for their personal needs.

Next we want to see how the government will make sure people have security in retirement. A new partnership between the state, individuals and employers could deliver this.

The foundation of the system must remain the state pension.

Clarity needed

The Green Paper also needs to deal with the rest of the bad boss stuff, the inflexibility and lack of clear rules.

So a further test is whether the pension system can adjust to a range of life experiences. Some people are ready to retire at basic state pension age or earlier, others want or need to carry on working beyond it.

There are currently eight different regimes

The population is ageing and the proportion of older people in the workforce growing. So it makes sense for the pension system to provide positive incentives for the people who want to carry on working to do so.

Finally, any reforms will be worthless if people don't understand the rules. There are currently eight different regimes.

So the last test is clarity: the rules need to be consistent and people need to be able to get hold of information and advice to help them make decisions.

'Political football'

All the rules have arisen out of the large amount of piecemeal reform to pensions introduced by successive governments trying to tinker with the system.

It's essential that the next round of pension reform sorts out the rules once and for all so people know where they stand.

Political parties must not use pensions as a political football: this only creates paralysis and uncertainty.

So if we're going to make pensions work, a Green Paper that meets Age Concern's five tests is just the start: we need a long lasting pensions settlement which is supported by the main political parties, and more importantly by all generations.

That way, we might just all be able to live with the boss.