Who’ll win this Pension Referendum?

We are about to have a pensions referendum. Votes will be cast not at the ballot box but through an obscure process known as “the opt-out“.

Over the next five years , more than 5m people, around 20% of the employed population will be joined into a good quality pension with what amounts to a 3% pay-rise.

According to some estimates, as many as half of them will say “thanks but no thanks” and sign the opt-out form which leaves them with more cash in hand but with no more than the state pension.

I have yet to see William Hill running a book on the rate of opt-outs but it’s going to be the measure of the popularity not just of auto-enrolment but of the British private pension market.

Which makes it hard for me to understand why the Government aren’t doing more to promote pensions. Last week I read the reports of a Civil Service mandarin rocking up to an NAP Conference and telling delegates that everything in the garden was rosy, that  quantitative easing (QE) was just a little blip that might lead to some short-term deficits and some temporarily reduced annuity rates , the equity markets might be in the 12th year of the lost decade (and a fifth) and we might be on our 17th iteration of sorting out how to equalise GMPs but “no- everything in the garden is rosy”.

Try telling that to the employees laid off because its employer can’t afford to meet it’s pension contributions, try telling that to the man with a pension projection that said £6,000 pa when his annuity quote offers him £3,000.

Confidence in pensions is at a miserable low because of the outcomes of the pension plans people have been saving into these 25 years. Not only have the values of these plans been savaged by commission and insurance company charges but they have been devalued by low equity growth and finished off by low gilt yields (a consequence of quantitive easing).

While the Civil Servants can smile complacently , in the knowledge that their pensions are invulnerable, the £5m people not in Governmental pensions, or good quality corporate pensions or even with poor quality private pensions, may well be thinking

Am I being mis-enrolled?

And the conclusion they may come to, based on all evidence to hand is that they would be better off not getting involved in pensions.

Indeed, if sufficient numbers of the auto-enrolled opt-out , then the argument for doing away with means tested post-retirement benefits falls away.

There is a tipping point where the “no” vote (those who opt-out) is so decisive that the Government has to chose either to give up on pensioning this lot or forcing them to save.

I hope it doesn’t come to that which is why I’d like the Government to do more than talk about pensions getting better- I’d like some positive action right now to help companies and individuals struggling with retirement some easement.

I read in the Telegraph this morning that more than one in three of the people retiring this year are continuing to work. This may sound a way out of a short-term crisis – it isn’t – look at the youth unemployment figures to see why. People have to work longer because their pensions are insufficient, some clever people will defer drawing their pensions till annuity return to where they should be. Some will continue to tough it out till equity markets come right, but the vast majority of people retiring today will live to regret their having to buy a pension at the worst possible time.

For all the positive PR the Government can pump into its enrolment campaign, it is these people who will be most influential in the pension referendum.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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