Brexit – what an opportunity

88300969_flagsI’ve always been pretty interested in politics and often stay up to watch the results come in on election night. This time was different though. The results wouldn’t get interesting for quite a while as there was no historic data to compare to and, frankly, I thought there was no chance of anything but remain being the result. I was sure that inertia would prevail. I went to bed fairly early for me but woke suddenly just after 4am feeling wide awake – almost like I sensed something was happening. Leave was winning and with every result that came in a vote for out looked more and more likely. Wow.

Hysteria

Facebook hysteria soon followed. I began to think I must have missed another announcement. Perhaps we’d also declared war on Russia? How else could such panic be justified? On the school run later that morning a friend of mine showed me the post of another parent who said their children were in tears that this had happened – what on earth had they been telling them?? Many others posted in a similar vein that they were deeply worried for the future of their children.

Project fear had clearly worked well and people were scared.

Lashing out

When the hysteria started to settle the lashing out started. Another animal instinct when scared or threatened.

  • “Thank you grandma” or how dare you almost dead old people vote against my young person view.
  • It was all racists and xenophobes.
  • It was the uneducated.

So there are 17 million racist uneducated old people out there apparently!

Denial

A day later came denial with a petition getting around 3m votes (interestingly from all over the world) demanding a 2nd referendum. Petitions quickly followed requesting second chances on all sorts of events from choosing lottery numbers to Stuart Pearce retaking his penalty in 1990.

The Liberal Anti-democrats and Labour MP David Lammy said the vote should be ignored.

The SNP confirmed they would take all steps to block it. To Nicola Sturgeon’s credit she had at least indicated this before the vote.

Pause for thought

What we did last Thursday was certainly momentous. But all we really did was vote to no longer be part ruled by an undemocratic bunch of bureaucrats in Brussels.

I am reminded of one of my favourite speeches from a New Zealand MP when they were voting on gay marriage. I commented to a friend that this would have been how I responded to the vote if I were PM. Something like:

“I give you this guarantee. The sun will still rise, your teenage children will still answer back, summer will still seem to last just 3 days, we will still be European and we will all still be friends. We now have an opportunity to shape a bright future.”

I was sad to see that David Cameron resigned after the vote. However, by doing so, he has also caused a pause for thought. A time to plan and a time to see how the rest of Europe responds. Many countries may decide to follow.

The opportunity

As a country we will be in control of our own destiny. That is a real opportunity.

The biggest opportunity though is social and political. The referendum has got people talking. It has got people voting and engaged who wouldn’t normally be. A referendum result has been campaigned for by (not my description) very right wing Tories and won with huge numbers of traditionally Labour voters voting for it – it has spanned the political divide.

There is surely now a chance to open people’s minds to a different form of politics and maybe some new parties too. One where the vocal left, a group I often refer to as champagne socialists, can reflect on whether they really are speaking for those they claim to care about any more, or just following their own herd driven moral hate crusade (See who you can hate). One where the Tory opposition isn’t referred to with disdain and an underlying assumption that all such politicians are only in it for money and power. One where the Tories winning this referendum can reflect on the needs of those poor communities that helped win this referendum and the social changes needed to make their lives better. One where we can debate ideas rather than throw insults.

Maybe I’m dreaming but it would be nice to think that all could reflect a bit on this result and work towards a bright future.

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Junior doctors strike action – is it justified?

In short, my opinion is it’s not. I’ll explain why…

Why is a new contract being proposed?

A new contract is being proposed to replace the current one that has some oddities to reflect a transition from an old era and is no longer fit for purpose. The stated aims for the junior doctor contract were:

image1

The government is also looking to use the new contract to reduce the cost impact of having more doctors working at the weekend.

Reviewing the current contract, whilst I can now understand how it came to pass, my initial reaction was one of surprise that: the current contract will allow someone working 41 hours a week to be paid the same as someone working 48 hours a week and anyone working illegal hours is paid more – an odd incentive system. Certainly there seemed good reason to consider something different.

Why doctors say they’re striking

This can be summed up simply as: “Patient safety”. Do they have a point?

Doctors state that the key safeguards in place under the existing contract are being removed and that this makes the new contract unsafe.

The existing safeguards that they refer to relate to the requirement to pay extra “penalty” pay if doctors work illegal hours. The NHS Employers’ submission to the DDRB commented that this was often adversarial:

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It is easy to see how this could be the case as doctors are effectively “rewarded” or “compensated” for working illegal hours.

The proposed new contract has the stated intention of making working hours better:

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But doctors said this was meaningless as effective safeguards to enforce this weren’t in place.

After reading the documents and original proposals, this didn’t seem to be the case to me. There was a specific section on safeguards and it seemed to put the power to raise issues with doctors themselves. This all sounded ok.

But talking to some junior doctors I could understand why there were still problems. There were significant conflicts of interest around raising issues with working hours. One I spoke to told me the following:

“the process of reporting would be in the first instance to your educational supervisor and this is a serious problem.”

“Educational Supervisor’s role is to oversee your learning objectives for that job and check you are achieving them…It is also their job to write all of the reports that decide whether or not you ‘pass’ that year of training and write 3 references per 6 months that stay on your portfolio for every future employer to see forever. This is not a person you want to piss off!”

“There will always be the fear that if you are a conscientious stay later, that you will be thought of as slow and inefficient and that will reflect badly on your training report so you’ll not mention it, even feel guilty about it.”

“It would be entirely feasible to ruin your training year or even your future job prospects by ‘exception reporting’ honestly.”

This is clearly an issue but it was only after discussing things in detail that I got to this. All the articles, posts etc. that I read just talk about removal of existing safeguards being bad without talking about what is being added.

However, the January negotiations have recognised this issue and added a “Guardian of safe working”:

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The revised proposals also reinstate financial penalties. However, these penalties will now stay within the health service to help improve working conditions or provide further training rather than providing extra pay:

image5

This all sounds positive. Is the new contract unsafe? If it is, it doesn’t appear to be any less safe than the current one.

Why doctors are really striking

It’s not about the money but…

…is the way a lot of conversations go. But money is important. I don’t mind it being about the money but I do mind misinformation about the money.

We’ve had this on both sides with doctors talking about 30% pay cuts and government talking about 11% pay rises. Both are talking nonsense.

One of the key principles of the design of the new contract was that the cost of pay afterwards would be the same as the cost before i.e. no average pay cut and no average pay rise.

Most junior doctors currently work 40 to 48 hours a week and are paid a banding payment of 40% or 50% of basic pay in addition to their basic pay. The average pay of all junior doctors is quoted in the NHS Employers’ submission as 143.5% of basic pay.

Under the new system basic pay is quoted as 11% higher on average and there are then additional payments for hours worked over 40 hours per week, hours worked at night, on Sundays and Saturday evenings, and for working on call. Finally, there are additional incentive payments for some roles such as A&E and General Practice.

Depending on hours worked, some doctors would find themselves better or worse off than under the current system. But…crucially:

  • These differences are not as significant as made out
  • The average doctor is no worse off
  • The difference in payments reflects some doctors doing greater number of hours and/or unsociable hours than others

Even more crucially, those who would be worse off under the new system will have their pay protected for 3 years. The nature of pay progression as a trainee means this should be enough to mean no “actual” pay falls.

My analysis of the proposed new pay structure based on the sample rotas is as follows (click to see larger image):

image6

These are % changes so, taking into account that the £ amounts are much larger later on in a career, most are better off overall with the exceptions being rotas 3 and 4.

It is certainly not the case that the new contract is fundamentally offering pay cuts. And it is worth remembering that doctors are in the top 1.5% of earners in the country. Rightly so. But worth remembering.

There are some losers though. These are part-timers and those who don’t progress through training each year. This is because under the current contract pay progression is done purely on “time-served” rather than experience. This leads to the absurd position that under the current contract there are some levels of pay that can only be reached by those who progress more slowly!

Whilst this is a worse position for those affected, the new contract is a much fairer system. My only caveat would be that I think it would be reasonable to offer extended pay protection for part-time workers as part of the transition.

There is a lot of hot air about pay with politics being played on both sides. I also think there is a lot of misunderstanding because of this.

Unsociable hours

There is much misunderstanding on hours too and their interaction with pay. I’ve seen several comments talking about the extension of “plain-time hours” as if it was an increase in actual hours to be worked.

The rate of pay for any hours only really matters if the hours worked change. Otherwise the redistribution of pay is the same. For example, if I work Monday to Friday and am paid £10,000 a year for each day worked, it doesn’t really matter if I’m instead paid £14,000 a year for Mondays (because who likes Mondays?) and £9,000 a year for each of Tuesday to Friday. In both cases I would get £50,000 a year. It would only matter if I worked more or less Mondays.

The rise in basic pay compensates the loss of pay from the extension of plain-time hours. It will vary by individual rotas how well this works. However, the change in what hours attract a premium rate is only substantially important if shift patterns change.

The desire for a 7 day service means there is a presumption of more weekends being worked under the new contract. However, many doctors already work a lot of weekends. It would be good to see a clear question and answer for how many weekends it would be expected that junior doctors may work.

Potentially working more weekends is a valid concern. It is one that is also suggested as being part of why the new contract is unsafe. Of course, working Saturday instead of Monday is not less safe in itself. But doctors are concerned that extra weekend work will be covered by sacrificing cover Monday to Friday. On the presumption that there isn’t an oversupply of doctors in the week currently this concern is understandable. However, the government did make it clear in the parliamentary debate on this that the intention is to use the extra funding to recruit more doctors to provide this cover.

Doctors don’t trust government on this but it is very difficult to see how it can be addressed contractually.

Finally, whilst some doctors having to work more weekends is undoubtedly more inconvenient, it should perhaps be considered in the round with other measures that are being made to try and make life better and the trends in other jobs.

Politics, ideology, mistruths, misunderstanding and low morale

The handling of the contract dispute has been appalling. It has been appalling on both sides and I feel I should be able to expect more.

I’ve mentioned already the ridiculous claims on both sides about pay. But we’ve also had misrepresented statistics and childish name calling about who told who what via social media (again both sides!).

There are some clear underlying encamped views on each other’s ideologies and the poor handling by government has made it easy for a few that clearly have some political agenda to stoke the fire of a demoralised workforce. This is really why we have a strike today. There is no longer any trust.

When I talk to junior doctors about the issues they have they talk about the personal pressures they feel to work hours after their shift and through their breaks; because there are still sick people to treat and rotas aren’t adequate. They talk about the inability to get time off when they need it. Simple things that many of us take for granted like taking a day off for a family event or booking a holiday in advance before the best places are booked up. They talk about the problems of moving from one place to another and trying to have a relationship. They talk about not feeling valued with constant bad news stories in the press. They worry about the future and increased pressures as funding becomes more and more stretched.

They also talk about internal problems. Interestingly, in the same discussion I mentioned before I was also told:

“A lot of hierarchy and bullying still exists in medicine“
“some consultants are very aware of how working as a junior has changed and are very supportive, and others think we are lazy for not doing the 100+ hours that they used to do.”

This is an environment in which it is no surprise that they are demoralised and it is no wonder doctors feel the need to strike. But these issues exist under the current contract. They aren’t the reasons put forward for the strike action and they aren’t really part of the contract dispute.

In fact, if anything the proposed new contract is trying to address some of these things. Better yet talks are ongoing. There is time for more of these issues to be addressed. The contract dispute is a cover the real problems faced by junior doctors.

We should all support junior doctors but strikes about the new proposed contract are not the answer!!

Some Background reading…

Original paper submitted by NHS Employers to DDRB: http://www.nhsemployers.org/~/media/Employers/Publications/NHSE-DDRB-submission-Dec-2014.pdf
DDRB recommendations: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/445742/50576_DDRB_report_2015_WEB_book.pdf
Offer made in November: http://www.nhsemployers.org/~/media/Employers/Documents/Need%20to%20know/JD%20A4%20booklet%20FINAL%20amends%2027%20Nov.pdf
Update on discussions in January: http://www.nhsemployers.org/~/media/Employers/Documents/Need%20to%20know/Letter%20from%20Danny%20Mortimer%20to%20SofS%20040116-Final.pdf
Letter to doctors setting out progress of discussions: http://www.nhsemployers.org/~/media/Employers/Publications/Junior%20doctors%20letter%2007%2001%2016%20final.pdf

Lower TVs and less DC saving…

…is perhaps an unlikely reaction to today’s budget consultation response. However, this could be the result of 2 of the measures announced today.

Locked away for too long

My first reaction following the budget this year was that DC might finally be something I have a real interest in saving money into. I am absolutely in favour of the reforms to give people more freedom with their pension savings. However, the reforms didn’t go far enough in my view. There was still the inflexibility of the money being tied up until 55, over 20 years away in my case. This is too long to tie my money up, there are so many scenarios I can think of in which I might need that money sooner whether it means I’m penniless in retirement or not.

Yet today it got worse still. Today it was determined that my money will be locked up until at least 58! That’s at least another 3 years before I can get at it and so another 3 years later before I START putting money into a DC pension. NISAs seem a much nicer way of doing things.

As an aside, the consultation response put “fairness” at it’s heart. It’s difficult to see why increasing the age at which you can access your own money is fair. Especially to the many people who don’t make it to retirement.

If all transfers are rational…

…then there’s some serious selection risk.

The area of most controversy in the consultation was on whether to ban transfers from DB schemes. Unsurprisingly following the reaction to this suggestion such a ban has not been implemented for all but unfunded public sector schemes. However, “safeguards” have been added such that independent advice must be obtained.

Given this, it perhaps reasonable to assume the majority of transfers will be rational decisions. But if this is the case then they must be better than average risks as far as the scheme is concerned. Should transfer values be reduced to take this into account?

Political football with pensions tax relief

Today’s FT Westminster blog states pensions tax relief is once gain going to be kicked around and become a key battleground as part of the election. Labour are proposing to reduce the relief to 20% for those paying 45% tax.

To me the whole concept of removing such relief is crazy. It will mean people are taxed twice on their money, 25% on the way into the pension and at least 15%, but for those in question likely 30%+, on the way out. This results in an overall tax rate of 55%! Of course the result should just be that no pension savings are made but this is an odd message to give. We already have both an annual and lifetime allowance for tax relief. Do we really need any more restrictions?

My tweet response to this was quickly followed up by Greg Kingston (@GregKingston) who summarised the political landscape well with:

@markjrowlinson @JosephineCumbo @ftwestminster always good to campaign on something most people don't understand. Lowest number will win.

It is this kind of politics that leads to division and the desire, from those that can, to look into ever more complicated tax avoidance schemes. I’m all for a progressive taxation system buts let’s keep it simple and be honest about it – that way we are all in it together.

It also reminded me of this little story who I have no idea who to credit to. There are many variants around but they are worth remembering from time to time. In particular the first part shows why it is only reasonable for the those paying more to gain more out of cuts and reliefs and the second why we should always avoid being too envious of those who earn more than us.

Let’s suppose 10 people who work together go to a restaurant after every payday, and at the end of the meal the bill comes to £100. They agree to cover the bill according to how much they earn.

The manager pays £55
The two supervisors pay £11 each
The four file staff pay £5 each
And the three junior staff pay £1 each

———————–

The regular meals continue for a few months and eventually they manage to convince the restaurant’s owner that, as they’ve been frequent and loyal customers and the restaurant is doing very well, he could give them a 20% discount. This leaves them with a £20 windfall to divide between them.

The first idea the restaurant owner proposed was to split the savings evenly between them, so each gets £2 – leading to:

The manager paying £53
The two supervisors pay £9 each
The four file staff pay £3 each
And the three junior staff receive £1 on top of their (now) free meal

Obviously the 7 paying colleagues weren’t very happy with this arrangement – so the restaurant owner said “Fair enough, we’ll divide the windfall among you, proportional to how much you contributed to the original bill.”, leading to:

The manager paying £44
The two supervisors pay £8.80 each
The four file staff pay £4 each
And the three trainees pay 80p each

The trainees then complain that their share of the £20 windfall is 20p while the manager’s is £11 – how is this fair?!

———————–

Let’s see what happens if the situation was to be reversed: the restaurant hits on hard times and raises the prices by 20%, but nobody wants to simply order less food. The manager proposes everyone contributes an extra £2 each so:

The manager pays £57
The two supervisors pay £13 each
The four file staff pay £7 each
And the three junior staff pay £3 each

The junior staff are not happy at all – the cost of their meal has tripled! So, they suggest everyone just contributes 20% more than what they used to for the original bill:

The manager pays £66
The two supervisors pay £13.20 each
The four file staff pay £6 each
And the three junior staff pay £1.20 each

To which the manager says “Sorry, I’m not going to pay £66 for a meal – I’m already paying for much more than I get. In fact, if you’re going to insist, I’ll find some less demanding friends and go to a different restaurant with them.” – leaving the remaining colleagues to cover the (now £108) bill between the 9 of them.

The moral of the story?
Don’t go to restaurants you can’t afford… And if you do, don’t get greedy with other people’s money!

The annuity is dead, long live the deferred annuity!

There has been lots of discussion post budget about the new freedom in DC pensions and whether this is a good thing.

There are broadly 2 camps of people. Those who think the changes are a good thing and those who think they are a disaster.

There’s good reason for this. Even if you trust people to manage their money well, none of us know how long we will live, so how can anyone pay their own pension? Steve Webb suggested people should be informed of how long they might live but a life expectancy is just an average rate. I built the following modeller to show this:

How long will you live?

What’s most important to show is how variable lifetimes are and how great a chance there is of living much longer than average. In fact by definition you have a 50% chance of living longer than average and average these days is pretty long!

Despite this though, I’m still in the first camp and think the changes are a good thing. Fundamentally I think it’s reasonable to let people spend their own money as they see fit. For some with little money at retirement this might well mean blowing what little they have in the first couple of years. But faced with poverty for life or a couple of good years followed by very similar poverty for life I know what I’d choose. Those with huge pots already do manage their money in retirement so we don’t need to worry about them. But it’s the people in the middle we do need to think about a bit more.

And with auto-enrolment in place many more will start to find that they have a sizable chunk of money in their pension pot when they get to retirement. That’s not to say it’s enough, but a sizable amount of money all the same. So what are they going to do with it in this new world of freedom and choice?

Annuitise like before

This seems unlikely, particularly at the moment. The fact that current annuity rates look so unattractive is partly why the changes have been made in the first place. Annuity providers were hit with significant share price falls on the budget announcement in the anticipation of a significant change in practice. Annuities are dead said some.

But annuities do still offer something. They are the only way of guaranteeing a pension income. Some may decide that, whilst they don’t want to annuitise their whole pot, using some to guarantee a level of income to cover their basic needs makes sense. The rest can then be invested and drawn down as and when required.

Why do current annuity rates look unattractive?

Many of those criticising the budget changes have been pointing out the benefits of risk pooling that annuities offer. This is a very valid point. Essentially those who live a long time are subsidised by those who don’t. Given none of us know when we will die this is a reasonable way of providing certainty to all. We can’t predict when an individual will die with any certainty but we can predict with some degree of confidence the number dying at each age for a large group of people. The same can be said of other risks in life such as crashing your car, being burgled etc. and it’s the principle of how insurance works.

However, an annuity also comes with some baggage. It can be regarded as not just an insurance product but an investment product as well. The underlying investment return of an annuity is very low, especially on inflation linked annuities, reflecting the low risk assets an insurer must invest in and their solvency and profit margins. As life expectancies are so long now, at typical retirement ages the chance of dying is still so small that this low investment return outweighs the benefits of risk pooling.

Now this isn’t the insurers fault1, the rate is low because insurance regulation requires such low risk assets and solvency margins to ensure certainty. But these low risk assets currently have minimal returns due to low interest rates and, in particular, quantitative easing. But just because it’s not their fault doesn’t make the rates look any more attractive.

Annuitise later

The solution to the problem is to annuitise much later, say 80 or 85, when the benefits of risk pooling outweigh the low investment return. Before this you can invest your money and pay yourself an income. If you die before you get to the point of annuitising then whatever funds you have left will be left to your next of kin. Having cash in your control also offers other flexibilities such as being able to use it to help pay for care costs if necessary.

In order to delay annuitisation and not be worse off you need to get a return on your money before you annuitise in line with the underlying investment return and also to cover the “cost of survival”. To understand this cost consider how the chance of making it to 85 changes between 65 and 84. At 84 you only have 1 year left and the chances of making it to 85 are high. However, at 65 there are 20 years in which you might die so the chance is much lower. A payment at 85 is therefore much more expensive if you’re already 84. The “cost of survival” each year is equivalent to your chance of death in that year.

Taking an annuity from Hargreaves Lansdown’s best annuity rates at 1 May 2014 for a single life inflation linked pension at 65 suggests you can get an income of £3,525 a year for £100,000 of capital. Or in other words it costs £28.37 for every £1 a year of starting pension. Using typical mortality tables for males this suggests an underlying real i.e. above inflation investment return of -1.7%. Current long-term inflation estimates are around 3.5% so this means a nominal return of just 1.8%! At 65 the chance of dying is around 0.8%. Therefore if you can earn more than 2.6% on your money after charges you’ll be better off by delaying annuitisation (assuming the same pricing basis). I’ve plotted how this breakeven investment return changes over time:

The return needed to beat the growth in annuity rate

The return needed to beat the growth in annuity rate

At 65 this it is 2.6%. It rises to 3.7% at 75 and 5% at 80. It then rises fairly quickly to 8% at 85. Given current AA rated long dated corporate bond yields of 4.2%, standing still, or in fact doing better than standing still, doesn’t seem that hard for several years. A 4% return each year would allow you to delay annuitisation until 87 and get the same pension.

This sort of product could easily be provided as a collective to make it easy for individuals. However, there’s something even better in my opinion.

Step forward the deferred annuity

A deferred annuity is one that doesn’t pay you a pension immediately, it is deferred. For example you could purchase a deferred annuity at 65 that paid you a pension from 85, if you get there.

Why is this better than delaying annuitisation? There are 2 key reasons:

1. You get all the risk pooling benefits from 85 when the pension is paid but also get much of the benefit from 65 to 85 as well as the annuity only pays out if you make it to 85.
2. If you know you’re covered from 85, you still can’t predict when you might die but you do know exactly how long your money needs to last you!

Using the same assumptions as above the cost of such an annuity would be around 28% of the immediate annuity cost leaving 72% of your fund under your control to draw as you wish over the first 20 years. This isn’t going to give you life changing amounts of extra cash (you still need to save more for that!) but it keeps you in control of your money for longer without sacrificing on the need for some certainty.

The FT’s Josephine Cumbo wrote an excellent piece on Don Ezra, a pensions investment consultant living in the USA, this week. Don sets out why he has bought a deferred annuity and his strategy for managing his money. It’s well worth a read!

This solution could really work. So come on insurers, let’s start thinking deferred annuities.

Footnote:

1 – Other than those insurers who were no longer active market participants and only wrote annuities at rip off rates relying on lethargy for existing customers to purchase them.

Reduction in the annual allowance – an opportunity

I read Josephine Cumbo ‘s article on pension tax relief being back on the agenda for Osbourne’s Autumn Statement in Sunday’s Financial Times with interest. The suggestion was that the annual allowance, the maximum amount you can put into a pension and claim tax relief on, may be reducing to as low as £30,000 a year.

I actually see this as an opportunity. I blogged just recently on my view on how long term savings can be improved and a reduction in the annual allowance for pensions makes such a scheme even easier to implement. Combine this fall in the pension annual allowance with an increase in the ISA allowance to same amount and you are well on the way to getting rid of pensions policies in place of flexible savings vehicles with incentives to keep money invested for retirement.

Industry interests

Someone commented earlier on a copy of my blog on Mallow Street that ISAs:

do not generate commission, and from the pensions industry point of view, this is a disadvantage. Indeed, they would compete for funds with conventional dc pensions.

Competing with conventional DC pensions is precisely the idea! This comment comes after comments from Michael Johnson that providers are holding back pensions reform. The pensions industry needs to stop worrying about change and have a good hard look at itself. It only has its self to blame for any industry wind-up.

Rethinking pensions saving

Anyone who knows me in pensions knows that I don’t like Defined Contribution (DC) pensions. They also know that I do like Defined Benefit (DB) pensions, that I believe these to be the most efficient way of providing pension benefits and that I am convinced that better regulation and scheme design is all that is needed for these to thrive again. However, it is hard not to accept that the change in direction that would be needed for this to happen is huge. So in the meantime we need to make DC better.

We need something new

DC pensions are actually nothing new. In fact I would go as far as saying they are very old, as old as DB pensions. What’s changed is that long ago when DB thrived DC was targeted at high net worth people who wanted control of their investments. Now DC is being targeted at the masses who don’t. What they want is either pension or savings. My biggest criticism of DC pension schemes is that they are not pension schemes, they are tax advantaged savings with strings attached.

Today’s world is very different and the young people of today have different problems. Is it right that we (as a nation) are trying so hard to encourage them to put money into a pension policy that they can’t access for 30, 40, maybe even 50 years. I certainly don’t want to and dislike the tax incentives that mean I sometimes feel I have to.

A new form of savings account

If we started with a blank sheet of paper what would we like to achieve?

I think we would look to achieve the following:
– Something that encourages people to save.
– Something that allows people to use money how they want.
– Something that encourages people to make long term savings such as for retirement

How can we achieve this?
– Tax relief on savings made (in line with relief currently on pension savings)
– Complete flexibility to take the money when you want (like an ISA)
– Pay back of tax relief on withdrawals made before retirement (to provide a disincentive to early withdrawal)

The current tax positions and flexibilities of both pensions savings and ISAs would be replicated but people wouldn’t have to make the choice of pension or ISA. Savings would be there to be used when needed.

This would be revenue neutral to the extent that we are happy with the current tax relief position of pensions and really mean it when we say we want to encourage more savings.

It would also come with the advantage of being able to abolish DC pensions with a rebranded ISA, a name that people trust.

Let’s really have a savings revolution.