I am so pleased with the response to the campaign that Gareth and I launched yesterday. The response from the popular press has been great with our campaign being featured in many of the tabloids and local papers. The story is not just that up to 850,000 households are losing out of £1,700,000,000 pa of money that is set aside for them , but that the private sector is interested in putting this right.
The second part of the story has yet to be proven. Gareth Morgan and Henry Tapper are two individuals with small businesses who care a lot about pensioners, it’s now up to the rest of the pension industry to take a view on whether pensioner poverty is something they can do something about.
Let us consider the underpayment of pension credits relative to savings rates. I’m quoting from the latest DWP statistics
The annual total amount saved for eligible savers across both sectors stands at £105.9 billion in 2020, which is an increase of £5.5 billion from 2019. Amounts saved in the public sector increased by £5.7 billion and decreased by £0.2 billion in the private sector.
Overall in 2020, contributions by employees accounted for 25% of saving, with employer contributions accounting for 65%, and income tax relief on the employee contribution the remaining 10%.
So as a rough approximation, the amounts being lost by the poorest not claiming pension credits is equivalent to 1.5% pa of annual savings. But it’s a very targeted 1.5%. The savings into auto-enrolled workplace pensions are heavily biased towards a lucky few.
Private sector employees in their late sixties onwards only started getting help from workplace pensions from 2012, before which a great many got no help from employers at all- because of the way pensions were sold, low-earners were not economically viable for the private sector and (unless they were lucky enough to be in an inclusive private sector DB scheme), low-earners were financially excluded from private pensions.
The situation is particularly bad for women
They continue to lag their male counterparts in what is called the “gender pension gap”.
Low earning private sector working men and particularly women have been excluded from the benefits of private pensions not just this century but for decade after decade in the twentieth century. What is more, many low earners have incomplete national insurance records and women in particular have limited rights to the state pension. This is why they form the bulk of potential claimants for pension credit.
Now let’s look at this from the perspective of the financial services industry
- Financial inclusion and social justice. Insurance companies, asset managers, pension schemes and advisers talk a lot about these topics. We see moves to include those who have difficulty saving in initiatives such as “sidecar savings”. The idea is that nobody gets left behind in the long march to a pension system that includes everyone on a fair basis. On these grounds alone, the financial services industry could and should be doing what it can for the poorest pensioners who have generally been excluded from private pensions and are unfairly disadvantaged by a low entitlement to a state pension – for them the pension credit is not a “hand-out” but the righting of a historic wrong.
- Gender equality. We have heard a lot spoken about the gender pension gap and much well-meaning talk about how it can be narrowed. The gender pension gap is widened by non-participation in pension credit because it is estimated that the majority of those eligible but no claiming are women. Which means that if we are serious about narrowing the cap in the wage people get in retirement, we must do what we can to increase participation in pension credit.
- Credit worthiness. A great deal of money, mainly money backing annuities, is leant to low earning pensioners with equity in properties they own. Equity release is used to fund a reasonable standard of living for those who are wealthy in an illiquid way. Equity release is designed to improve the income of the wage poor but it is a last resort for many and the cause of considerable is-harmony within families. Pension credit is not just a valuable benefit in itself (providing an income that can often be an extra £60 pw, it is also a way to help those struggling with ongoing ownership of property to pay their council tax, heat their houses and even watch TV. Equity release is sold as a means for the income poor to afford to live but often their is credit elsewhere – pension credit. Selling equity release to people with an unclaimed eligibility to pension credit should be a matter of concern to financial regulators.
- ESG The social in the environmental , social and governance equation comes back to the issue of a just and fair society. If the financial services industry is to practice what it preaches, it cannot channel all its resources into the management of wealth for those who have it, it has an ESG responsibility to help out those who have least. The provision of social housing is one of the principal ways of showing ESG, it makes our money matter. But the social housing that’s provided cannot be afforded without housing benefit and housing benefit is unlocked by pension credit (the door to more). The campaign we are running is compatible with ESG policies and should be adopted by any pension scheme, fund manager or adviser who cares about the societal impact of what they do.
- Financial education. We all know there is a link between poverty and financial literacy. We are not going to make most pensioners financially literate but we can help them to become financially solvent. The failure of the financial services industry to provide the educational resource to those excluded from these services is a matter of regret and an admission that relative to some of our European neighbours, we have failed to empower and engage 30% of those so poor in retirement they have only to make a claim. Many of these people are so physically and mentally limited that they cannot do things on their own. But many more should have the self-confidence to claim and don’t and this includes a great number of women who have never had to manage their own income as this was left to their partners. If we care about financial education , we shouldn’t stop at 65-6-7. Providing financial education to get elderly people into solvency is a duty, we cannot let the elderly decide to heat or eat, we must give them the means to have personal dignity.
Not a harangue – but a polite request
It would be easy to throw stones at the financial services industry for hypocrisy, but that is the wrong approach. I have given five reasons for the financial services industry to take notice of our campaign and to help – both in improving participation and making suggestions as to how we can join up information to make claiming easier and the processing of claims – automatic.
I should point out that the press release send out yesterday went to 150 journalists working in the trade press. Though the campaign has received great publicity from the national and regional press, it has got no traction with industry news feeds. Can we please have some engagement , beyond the many likes on social media!
If you’d like to be a part of the campaign and know ways we can help, can you contact me at email@example.com or Gareth at firstname.lastname@example.org
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