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State pensions are best
The following article appeared in the SPAG Newsletter for October 2004, under the title "Retirement cocktails - if you're lucky!

Retirement, according to an article published in
the Money section of The Times on 25th
September, "should offer time to sip cocktails on a tropical beach, play golf or indulge in adventures that a lifetime of work has stifled. Yet unless you ensure that your pension is working for you, such dreams will remain out of reach."

We know rather a lot of Southwark pensioners who couldn't afford the cocktails, even if they could afford the fare to a tropical beach. Most of their income comes from the basic state pension, whose value falls each year to a smaller percentage of average earnings. You could certainly say that their pension is not working for them.

The Times article, however, doesn't even mention the state pension. Its author, Antonia Senior, confines her attention to private pension schemes of the kind that people of working age are now being pressed to join, where the size of the pension depends entirely on how successfully their contributions are invested.

Schemes of this kind are, literally, a gamble, since no-one can predict the value of investments over a working life, or even from one year to the next. One of the most telling facts quoted in the article is that "anyone retiring this year will have a pension worth almost 15 per cent less than the income of someone that made exactly the same contributions but retired last year".

Once you reach pension age, you are stuck with whatever pension the scheme can afford to pay you. But isn't there anything that our children can do to protect their future pensions?

Well, yes, there is, if they happen to be financial experts. While all private pension funds are subject to investment risks, some do better than others and, the Times article tells us, there is "a huge difference between the best and worst funds". According to Tom McPhail, head of pensions research for a firm of financial advisers, "about 25 billion of investors' cash is languishing in unit-linked pension funds that consis-tently fall into the bottom half of performance tables".

If your money is in a badly-performing fund, you don't have to leave it there - you can move it to another fund. "It isn't complicated to move a pension fund", Mr McPhail assures us. His advice, therefore, is that pension fund investors should make "yearly performance reviews". Older investors, Antonia Senior writes, should "review their investments more regularly, ... moving money into gilts and cash as they get older."

For most people, such advice is completely useless. They pay money into a pension scheme so that highly paid professionals, employed at the expense of scheme members, can invest it to the best advantage. If the professionals can't get it right, how are ordinary working people expected to do better?

Even if they managed to choose the right fund to move their pension savings to (and moving a pension is not as simple as Mr McPhail would have us believe), the most successful funds can suffer devastating losses if the stock market collapses, as it did recently.

All of which confirms our view that providing - and guaranteeing - decent pensions is a job best done by the state, with private pension funds offering a voluntary top-up for those who can afford to gamble part of their current income in the hope of sipping cocktails on a tropical beach in their retirement.

Admittedly the state isn't making a very good job of it at present, but there's nothing wrong with state pensions that couldn't be put right, given the political will.