Pensions – the easy answers to the tough questions

27 July 2016

With the full impact of Brexit yet to be seen the new Chancellor Phillip Hammond will undoubtedly have a challenge like no other Chancellor. The words missed forecasts, lower GDP and National Debt are all words likely to be shouted from the despatch box with regularity in the coming months.

This might not be a popular thing to say and I truly believe we should support over 65’s, but our State Pension system is broken and needs fixing quickly. For successive governments, a no go area seems to have been placed on state pension increases which at a time of national austerity, I find astonishing. We all know the reason, that politically it’s a class of voters that dare not be alienated. At a cost of £6bn+ per year and rising, how long can it continue?

Most of the work I do is with members of the public that are older than 55. I have certainly seen a change in opinion in recent times with the main concern about the legacy they are leaving their children, grandchildren and future generations beyond that.

In an ideal world we would be running a budget surplus and every core age group could have what they wanted. The harsh reality is the UK spent £70bn on State Pensions in 2015/16, which is the highest spend for any government department. My view, which is not an isolated view, is that women have been very harshly treated in terms of State Pensions with the change in pension age from 60-65 over a relatively short period. Let’s not forget, these are women that on average have significantly lower private and State Pensions compared to men. There was real hope that when former Pensions Minister Dr Ros Altman was appointed there would be a voice in government that would challenge political decisions that were wrong and it was someone who understood financial services and pensions. Unfortunately not. No more said on that for now at least.

I find it difficult to understand how earnings have flatlined for a number of years with both private and public sector workers having received pay freezes and significant changes to their pension arrangements and future benefits yet State Pensions have received generous increases well above CPI and RPI. This “triple lock” on State Pensions ensures a minimum increase of 2.5% increase each year regardless of inflation, economic factors or the state of the country. Think of what could be done with the money from a significant State Pension overhaul. Given our system is one of the most generous in the world, has there been a better time to protect future generations or some of the other areas in the UK that need money?

I certainly don’t want to point the finger at any age group in the UK. It’s widely perceived that we have a creaking NHS. Everyone I have ever spoken with talks incredibly highly of the NHS, the people that work in the NHS and the service and treatment received. Partly due to the success of the NHS is that people are living longer, placing more pressure on this sector and of course the Government bill for pensions. It scares me to think of our NHS like the health services in the US with the requirement for private health care. If the cost to avoid this and continue to build and improve the service is a removal of the triple lock, is it not worth paying?

There is currently talk that a proposed change for all defined benefit schemes in this years pensions bill will change the rate of future pensions increases from RPI to CPI. Personally I have concerns about this, as these are guarantees set out by the schemes upon membership and for most will form their main pension/s. Schemes, Trustee’s and Employers should be more accountable for the failure of pension schemes. A great case in point is the current BHS pensions scandal and the role Sir Phillip Green played in the failure of BHS and the pension scheme.

Isn’t it about time the politicians made the easy decision to abolish the triple lock and protect that money for the NHS? With all the pre-Brexit talk and bluster about £350m per week being redirected to the NHS, it might just be a chance to honour this commitment and secure its long term future.

Feel free to ask any retirement questions on any type of pensions direct to me.


Author: Paul Barnes DipPFS

Independent Financial Advisor & Pension Specialist