The discussion focussed on the question “can Britain afford proper pensions” which broke into three questions.
1 What makes a pension proper?
2. What is the true price of funding for pensions?
3. What are the consequences of not pre-funding pensions?
As for proper pensions, we considered the matter in terms of the adequacy of the retirement income and in terms of the quality of the income.
The consensus was that there is an obligation from Government to citizen to make sure citizens are neither destitute or a burden on the next generation and the consensus was again strong, the room generally reckoning that an income of £1000pm tax free was the least someone in retirement should receive.
There was also a degree of consensus about how that £12,000 might be funded. We were grateful to Paul Lewis for tweeting that morning that the cost of the basic state pension at £140pw from 67 was now £180,000. It became clear to those in the room that even with auto-enrolment, a balancing pensions of some £4,500 pa would be beyond the means of many working today.
The discussion took an interesting turn when we turned to the question of the quality of the pension on offer. Were we to adopt a collective approach to pension provision, would we see a fall in the funding balance for that £4,500? If we were to adopt the assumptions within David Pitt-Watson’s papers, could we see a drop in the cost of funding for £4,500 pa (say £125,000) to that of funding for £3,000 (say £80,000) as sufficient to make a £12,000 overall pension (with £7,500 from the BSP) fundable using a minimum employer contribution under AE.
We concluded that this was feasible.
The conversation then set about considering the economic consequences of deferred consumption. Certainly a major increase in DC funding from AE would have the consequences of reducing HMRC revenues and the amount spent on good and services. We didn’t consider this a good idea in terms of immediate growth prospects though there was a consensus that the Government should press ahead with both AE and the £140 BSP.
The forthcoming review of the proposed upgrade of the Basic State Pension to £140 pw, instigated by David Cameron met with universal disapproval from the party.
In summary, the lunch group concluded that we need to better understand what are “proper” pensions both in terms of quality and quantity.
We could not conclude that the long-term benefits of a funded pension arrangements outweighed non funded variants (PAYG and book reserve)
As a result , no vote was cast and the question was deemed “too hard”.
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