Good morning and happy new year.

I was conscious last night that as well as 100,000 of us swilling and singing in the new year on the banks of the Thames, there were many suffering in wet clothing, wet bedding with the most basic of shelters, perhaps a bridge, a covered doorway , a subway. Two of my friends give up their Christmases each year to help these people get shelter in a crisis.

Homelessness is at one end of the spectrum, loneliness and self-isolation through depression afflict many more. For all the happy faces on the banks of the Thames , there are many asleep or awake – feeling they should be enjoying themselves – but dreading the new year.

Some worries are unavoidable, I heard over the Christmas period that one of my friends heard he had stage 4 cancer , it is easy for me and those who know him to devote our time and prayers to his recovery and provide support to his family.

But the duty of care that drives us to care for those in obvious need, does not ordinarlily extend to the people who are not in obvious distress but who are suffering , often preventably , from anxiety.

This blog deals in the currency of pensions – money.  When I woke up , my first thoughts were of a report published last summer which has haunted me since. It was republished before Christmas on social media by Isio’s Will Aitken.

I agree people aren’t opting out but I am not 100% sure that is always a good idea. Attached shows more people cut back on eating and heating than pensions https://t.co/Gb0owFkwj5 pic.twitter.com/GPyV7HadgW

— Will Aitken (@WillJAitken) December 22, 2023

There is a very delicate balance to be achieved with auto-enrolment. The people who are at the margins of paying income tax aren’t typically getting tax-advice about managing cashflows through dividends and capital gains. They are not paying tax because they don’t have enough income and rely on help to just get by. To date – we have largely excluded these people from workplace pensions through the auto-enrolment eligibility criteria

This point was made with greater dignity than I can at a recent PlayPen coffee morning where Bryn Davies – a lifelong champion of social equality – argued against the extension of auto-enrolment to include lower earners from £1 of their earnings.

Isio’s report makes for interesting reading on this

Isio questioned over 7500 private sector employees about what worried them this time last year and the big worry by a considerable degree was how to get by. A quarter of people responded said they were worried about the impact of the increased cost of living on their lives.

As Will points out, a third of people were cutting back not on discretionary spend (which presumably had been pared to the bone, but on essential shopping. Essential shopping is the stuff you need to stay healthy and clean.

I suspect that people are able to cut differentiate between essential and non-essential shopping easier than determining what goes to pensions and what goes to savings, but the finding that 6 times more people said they were saving less rather than cutting back on pensions tells me what I know myself, that pension contributions are a self-imposed tax we find it very hard not to pay.

So even at a point where 30% of us are most concerned by just paying the bills, only 6% of people have taken steps to reduce pension contributions. That tells me how important pension saving becomes to those who do it.

The power of pensions

In “Un couer simple”, Flaubert wrote touchingly about how someone held on to a disintegrating parrot as a symbol of hope for the future, the parrot became her “holy spirit”, a tangible embodiment of a life hereafter.  I fear that pension pots become something like “Flaubert’s parrot” to many, more a beacon of hope than a real help.

The destitute widow ends up praying to the parrot who she confuses for the dove of the holy spirit

Flaubert was not so sentimental as to suppose that the parrot would make much practical difference and some would argue that it was delusional. That is what I mean by the fine balance we must maintain between over-promising and giving false hope and denying the quantum of solace that monthly contributions bring.

Saving into pensions is a very powerful statement made by people about their futures.

The importance of the state pension

My old friend Ray Chinn was in touch over Christmas, trying to remember how he featured on my blog. I can remind Ray that he once reported to a conference, internal findings at NEST (where he was in charge of the member experience) , were that almost a third of people saving into the “Government Pension” thought they were saving for extra state pension.

Not only do people seem to prioritise “pensions” over saving, but they are only too aware that the state pension is very valuable. Recent figures published by the DWP show that following a campaign by Martin Lewis, the over 50s are swapping savings for state pension buying pension credits to make sure they get their full whack when they finally make it to state retirement age.

The most read blogs I write are about the state pension – not getting it (WASPI) , getting the wrong amount (Steve Webb) and topping it up (Martin Lewis).

Many low earners will save throughout 2024 and get tax relief , even where they don’t pay tax, but many won’t – it’s the last year of the net pay anomaly and though they may be rebated some time in 2025, the rebate will be something they have to apply for. When people ask for a 2024 rebate, they may well wonder what happened to the cash in hand rebates for their overpayment of pension contributions from 2016 to 2023. We have that bun-fight to come and I am quite sure it will expose the iniquitous unfairness of workplace pension contributions for many poor people.

If we really wanted to improve the pension situation of the pension poor, we would make sure that a full rebate of overpaid pension contributions was put in place. But this is a low-order issue. If we were really doing our job , we would suggest to those we are considering enrolling into workplace pensions, that they first consider saving to buy extra state pension , if they have headroom.

Because if the expectation of saving into a workplace pension is a small pot which is cashed out in retirement, then it is not pension saving at all, merely the building of a nest-egg. The Isio numbers suggest that people consider their pension more important than their savings but hint at confusion.

Flaubert’s Parrot

Workplace pensions are not some kind of financial pacifier, or the fiscal equivalent of Flaubert’s parrot, they are the financial dream of many of us that one day we can stop work and go and do something more interesting instead.

We sell the dream of funded  workplace pensions to all workers in the private sector but they are clearly more suitable to those with average to high incomes, than to those with low incomes.

A year ago, Isio asked the question

I suspect that the clouds are yet to lift, people don’t feel they have yet weathered the (financial ) storm.

Auto-enrolment is not a “con”, but workplace pensions are best for the affluent and don’t do much for those in financial hardship. For those who are in genuine poverty and for employers with workforces that just get by, the prospect of extending the scope of AE to cover millions of those on the lowest incomes needs serious consideration.

Isio’s questions to employers are tough and real

Do you know what’s keeping your employees awake at night? Why should an employer support those facing financial turbulence, and how could employee benefits do more?

Helping low-earners manage their retirement , should not include telling hard-up staff that workplace pensions are as much use as praying to a stuffed parrot. That would be to break the law.

But that’s what many employers should say to staff if they are enrolled from £1 into a pension that stops them properly eating or heating,