“I couldn’t afford a pension”.


In my book of objections, supplied to me the first brokerage I sold for, the “I can’t afford it” objection sat at the top of the list. We were told to ask the customer “can you afford not to have a pension” and not take “yes” for an answer! Back in the early eighties I was selling mainly to C’s and D’s – as market segmentation had it then. These were people who genuinely couldn’t afford to waste money on my exorbitantly priced products and I look back at the sales I made with some regret.

But times have moved on, not only have the pension pots we save into become better value for our money but general levels of affordability have increased. A glance at long term trends in the British Household Income survey shows that even the lowest earning households have net available income. Not only that but we now have a retirement savings habit which includes around 2 million people who don’t pay tax. Around half of these savers get a Government Incentive equivalent to an extra 25p for each 100p they save and around half don’t.

This is politely called the “net-pay anomaly” and would be better called the “pensions lottery”. Fortunately there are people in this country who do care about people having to pay more than they should to save for retirement and one of them came on Paul Lewis’s MoneyBox on Saturday. I’ll allow my friend Kate to make the introduction

I met Meredith through Ros Altmann who has put together a small group of people who care about this. It includes other members of the Low Income Tax Reform Group.

You can hear what Meredith McCCammond had to say to Paul from minute 19.08 by clicking here.

She speaks without emotion, sticks to the facts and is frighteningly clear. Her calculations shows that non-tax payers are currently paying £35pa more for being in a net pay pension and this will rise to £65 when statutory contributions increase in April.

The HMRC made a statement on the program that they are “looking into it”. The LITRG have a suggestion that they should look into with some urgency .

Of course there is another view of the problem, one articulated by Chris Fox on the thread Kate started

Well “no and no”. The ability to get tax relief on a relief at source pension has been around since the advent of stakeholder pensions and was widely publicised as a way of gifting your children pension. I didn’t hear anyone moaning about this amongst the higher rate tax-payers who could afford that little pension perk.

But I do here Chris’ argument being regularly trotted out by the managers of occupational schemes using net pay for the collection of tax- relief. The second “no” rebuffs any claim that giving the low incomed a leg-up is unfair. As Paul Lewis concluded , these are precisely the people Amber Rudd is taking the credit for enrolling.

Helping the poor to afford pensions

We are after a more inclusive pension scheme where people can afford to make reasonable pension contributions. The Government Incentive of 25p in the pound, was promised to all AE savers under the 3+4+1 formula. That formula was quietly retired (ironically when Ros Altmann was pension minister) in 2015. But the promise has not been quite rescinded.

If  some low earners get up to £65 towards their auto-enrolment costs from April, why do some not – why is this down to the type of contribution structure chosen by their employer about which they can do nothing? What is fair about that?

Meanwhile , from the organisation that bring you MoneyBox, comes another story. A story of reduced take home for those saving into a workplace pension – from April (surprise surprise).

In the kind of article that Paul Lewis would tear his hair out while reading, Rob Young , a senior business reporter kicks off with this headline

Pension contribution hike to hit pay packets

the article is full of misinformation including a statement that

Workers with auto-enrolment pensions will contribute 5% of their salary from April

which simply isn’t true, the band of earnings against which AE contributions are made is capped and you don’t contribute on a low-band of your earnings. What’s more, in terms of take home , most savers will still only pay 4% and some much less. The only people who will be paying 5% on their band will be the low-earners in net pay schemes (over a million of them).

The hike in contributions in April re-introduces a phrase that the BBC brought to us in March 2018 – “auto-enrolmageddon”

Figures calculated for the BBC suggest it (auto-enrolment) could make the difference between earning more than £18,000 a year in retirement, or as little as £1,000, on top of the state pension.

Many workers may decide they cannot afford to pay the extra.

It is such a serious dilemma that one expert has called it “auto-enrolmageddon”.

Infact, in the contact of the article last year,  the phrase refers to opting out of auto-enrolment rather than its impact on people’s finances,

This year the phrase has been used in a different way

The change coincides with uncertainty in the economy, leading some to dub the move “auto-enrolmageddon”, although the industry is not expecting a big jump in opt-outs.

Though this year’s article stops short of mentioning BREXIT, the reader is reminded that the date we leave Europe is March 29th and the date of “auto-enrolmageddon” a week later.

Pension Project Fear – BBC style.

Another “cut” for the poorest.

If Rob Young had listened to MoneyBox, he’d have had a more important story.

The price of getting a decent pension will come as a cut in take-home of £49 for someone on £15,000. But note – if someone on just under £12,000 moved from a net-pay contributing employer to a relief at source paying employer (such as NEST), they would be £65 better off.

The difficult truth is that there will be over 1m people in pensions from April 2009 who will be paying too much for what they have been promised and they represent the poorest and least advised people in society.

The BBC, as a public service broadcaster ought to get its messaging a little clearer.

The joined up message is this

Auto-enrolment is affordable for almost everyone , provided the Government subsidises those on low income with the incentives they’ve promised.

If the Government doesn’t pay out these incentives, not only is it being grossly unfair to more than 1m of us, but it puts at risk the affordability of auto-enrolment to those who need it – those previously excluded from workplace pensions.

The BBC, like the LITRG and Ros Altmann’s working group and Kate Upcraft, should broadcast this message to the nation (and drop the weird stuff about autoenrolmageddon).


Royal London graph showing impact of opting-out as a 35 year old

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in advice gap, auto-enrolment, pensions and tagged , , , , , . Bookmark the permalink.

3 Responses to “I couldn’t afford a pension”.

  1. Adrian Boulding says:

    Henry, well said on the net pay anomaly – the more of us that shout about this disgrace, the greater the pressure in the Chancellor to do something

    And make no mistake, it’s the Chancellor’s call and it’s the Chancellor that’s currently blocking it.

    But I don’t think you need to beat yourself up about the early high cost plans you sold. I feel proud that I’ve helped this industry to offer much better value pensions today , and so should you. I too started in the high cost era, in my case Industrial Branch Savings with a 40% expense ratio, but without us they would not have saved at all and would not have had the comfort and security of asset backed welfare to fall on in hard times. I didn’t sell but I worked in surrenders and I saw what a difference those savings made when they needed to cash them in.

    In my book we did right for those early savers and we do even better for today’s savers.


    • henry tapper says:

      Well I still see some of the people who bought those expensive plans and I’m not sure I’m very proud of myself! If there’s good that’s come out of the old days – it’s the new days!

  2. Bryn Davies says:

    I’m afraid that my takeaway from my time in “Surrenders and Loans” is somewhat different to Adrian’s. It’s where much of the rubbish that shouldn’t have been sold in the first place ended up, and people all too often accepted the poor terms on offer simply out of desperation.

    On the net pay anomaly, this has arisen, as you point out, because the Government failed to honour the promise of 3+4+1, upon which auto-enrolment was originally based. I’ve yet to see a coherent explanation of why HMT doesn’t sort it out.

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