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PensionsBusiness Reporter · May 2014

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Retirements at risk from helping children onto housing ladder

Contributions must increase to cover care costs, warns report

By Dave Baxter

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The changes made to our pension system in the UK over the last two years are revolutionary, not

evolutionary. The recent Budget gave people more control over their pension savings than ever, but the auto-enrolment reforms that began in 2012 are probably more signifi cant. Together, these reforms represent the biggest shake-up to our pension system for more than a century.

Both these changes have been made possible by the current government’s move to increase the state pension for future retirees to a basic subsistence level that removes the ignominy of means-testing and its e� ect of devaluing people’s private pension savings.

Since the early 1960s around half the UK workforce have been in workplace pension schemes run by their employers, but the other half have not. Auto-enrolment will change that. Once all employers have been through the

process of implementing auto-enrolment every employee in the country will have access to a

pension scheme at work. The larger fi rms have already been through this process and over the next few years it will be time for the smaller fi rms to do so too.

Employees who are enrolled into workplace pension schemes are allowed to opt out if they wish, and there were fears that many would do so. As the large employers have implemented pension auto-enrolment, those fears have appeared to be groundless as few employees have opted out.

Many have said this would be di� erent as smaller fi rms reach their staging dates, and that young employees in particular would opt out once enrolled. The argument held by many has been that young people these days have unprecedented levels of debt and are struggling to get a foot on the property ladder, and that pension saving is unlikely to be a priority, even with a contribution from their employers.

Our experience of working with mid-sized employers over the last six months or so suggests that is not the case. Indeed, our fi ndings are that young employees are no more likely to opt out than employees of any other age, and that opt-out levels look set to remain low as the

smaller employers start rolling out workplace pension schemes.

It looks to me that these important reforms will succeed, but I would like the government to consider yet more radical changes. While it is true that half of all employees have been denied access to pension schemes at work in the past it is also the case that today half the workforce are denied life assurance at work too.

With employers of all sizes now having the benefi t of modern middleware systems to operate their auto-enrolment

compliance and run their pension schemes, it would be possible to use such systems to run life assurance and other workplace benefi ts too. Cost-e� ective life assurance and the peace of mind that would come with it could be brought to nearly 13million employees and their families in this way. That, I think, would be truly revolutionary.

Steve Bee is CEO at Jargonfree Benefi ts020 3141 9391www.jargonfreebenefi ts.co.uk

Reforms represent the biggest shake-up to our pension system for more than a century

INDUSTRY VIEW

Keep up with the pensions revolution

private pension savings. Since the early 1960s around

half the UK workforce have been in workplace pension schemes run by their employers, but the other half have not. Auto-enrolment will change that. Once all employers have been through the

process of implementing

PARENTS could be putting their retirement plans at risk in order to help their children to buy property, a survey suggests.

A survey carr ied out by Halifax and released in May analysed 3,000 views from parents across three years.

The results showed that 38 per cent of parents worried about their future fi nances a� er giving their children support in getting a home.

It also showed that around two-thirds of people aged between 20 and 45 who had bought a home had done so with fi nancial assistance from their parents.

Craig McKinlay, mortgages director at Halifax, said: “For many buyers, parental support is now the fundamental fi rst step onto the property ladder.

“This is becoming a universal expectation of all parents, not just the wealthy. More parents are dipping into their savings and don’t envisage it being repaid, compromising their retirement funds.

“For parents whose children are looking to buy, and those fi rst-time buyers now wanting to own, real consideration needs to be given to set realistic timescales and ways in which this can be achieved without either party being overstretched or facing longer-term financial di� culty.”

Deposits have risen over recent years. Another piece of Halifax research, released in January, showed that the average deposit for a fi rst-time buyer had reached £30,943 in 2013. The average fi rst-time buyer deposit for 2012, in contrast, was £28,001. The fi gure for 2007 was £13,444.

The size of deposits varies signifi cantly across the country. The research showed that the smallest average deposit for fi rst-time buyers, in the North East, stood at £15,862. The largest average

deposit, in Greater London, was as high as £56,183. If house prices continue to rise, the situation could remain di� cult, both for budding homeowners looking to come up with a deposit, and their parents.

AN INCREASE in the amount people contribute to their pensions could help tackle the cost of caring for the elderly, an industry body claims.

The Institute and Faculty of Actuaries has published a new report, “How pensions can help meet consumer needs under the new social care regime”, arguing that the recently announced pensions reforms, giving people more fl exible access to their money, could encourage people to save at a younger age and take alternative approaches to accessing their funds, rather than buying an annuity.

It suggests that “fl exible drawdown” – the option to withdraw chunks of a pension pot and paying tax on a proportion of the amount – could be used, or that a new Pension Care Fund, similar to a defi ned contributions pension scheme but ring-fenced for care costs or insurance, be set up and given similar tax treatment to pension savings.

A £72,000 government cap on how much of an individual’s care they will have to fund is expected to come into force in 2016.

But the report argues this will benefi t just 8 per cent of men and 15 per cent of women and that people could spend as much as £140,000 on average before they hit the cap because the limit only covers certain care costs and not things like food and accommodation.

Parents are risking their retirement plans by helping their children buy property