Pensions are boring. They provide no interest to large swathes of the population. That is, until they need them. Then they suddenly become extraordinarily interesting, but many people find they are doing too little too late to increase their pension savings to a level that will give them their desired income in retirement.
My first job was on a pensions publication, and when I was asked what I did for a living I would say, ‘I’m a journalist’ and people would be interested. When I added that I specialised in pensions, the interest waned immediately, unless of course they had a pensions problem they needed some advice on.
The point is, saving hard over the long term for a secure future many years hence is not a sexy proposition. Sorry, but no matter how we dress it up, it is a hard sell for some.
The increasing desire for immediate gratification that our current lifestyles demand do not lend themselves to putting money away for a rainy day.
Saving hard over the long term for a secure future many years hence is not a sexy propositionPlus, for many, there is simply not enough spare cash to compete for the attentions of savings plans when it comes to covering the day-to-day living costs of, say, raising a family.
So, initiatives like auto-enrolment make a lot of sense as they encourage people to either think about their pension saving, or if they simply cannot be bothered to do that, then it means they start pensions savings without any real fanfare.
It is not easy to see how to make pensions more appealing. Perhaps some kind of ‘wealth warning’ akin to what we see on packets of cigarettes showing just what a life in penury would look like might help.
But where would you put it? It would have to be on a product people are keen to have, and how many of those products would promote a pension?
Trying to catch people as they start their working lives makes sense, so at university and even school would be a good time.
But with a retirement age heading north of 65, or 55 if you want to be as generous as you can be, that is still almost literally a lifetime away for an 18-year-old. Who, at that age, wants to be putting anything aside they can spend now, on a promise of giving them a good life in the future?
The tax relief in the UK is generous – being able to put £60 aside to get £100 into the pot as a higher-rate taxpayer, or £80 to get £100 as a basic-rate taxpayer is definitely a good incentive.
The pension freedoms have helped too, as it provides much greater flexibility about how and when you take your pension when the time comes.
However, the news that the taxman has taken considerably more in income tax from these pensioners than originally thought – £17.9bn rather than the more modest £13.5bn – makes using a pension less appealing than it otherwise would be.
The difference comes because HM Revenue & Customs is now using real-time pensions data from providers, so rather than an estimate we have facts.
It seems the estimates were considerably off.
Analysis by Royal London showed the overall cost of the pension tax relief came in at £38.4bn in the 2017-18 tax year, which is more than £5bn less than previously thought.
Sir Steve Webb, former pensions minister and director of policy at Royal London, said: “It is clear that pensioners who have worked hard and saved hard are putting billions extra back into the economy through the tax on their pensions.”
Agreed, and this does nothing to improve the perception of pensions for those young enough to make real in-roads into the benefits these savings plans provide.
The obvious alternative savings plan for your future is an Isa, which can be accessed at any time and has the tax relief on the way out, rather than the way in.
The benefits to be gained from not being taxed on your income in retirement are considerable, since your earnings and earning power will diminish at that stage.
Keeping an additional 20 per cent of the money coming to you is probably more beneficial than losing it to the taxman. Of course, you lose the compounded benefits of the tax relief on the way in, so it is not a perfect solution.
So, perhaps what we should be looking at is a scheme that gives you access sooner, some tax relief on the way in and then better rates of income tax on the way out, so you lose less when you need it the most.
Perhaps that would help to encourage younger people to save more, because if they needed money in an emergency, they could access it.
This would be a hybrid between an Isa and a pension, with lower early reliefs but lower income tax at retirement.
The chances are this has been suggested and discounted already, but one thing is for sure: if we want people to want to save into a pension rather than having to coerce them into it, then perhaps it is time we all, as an industry, came up with other solutions that will resonate more with the general population.
Alison Steed is a freelance journalist
