I have met a few people when advising who have given up on retirement because they see the pension system working against them. Some of them have given up on work – at least in the paid sense.
I have a close friend who has been out of paid work a few years now; he says he’s caught in the benefit trap where to go back to work would reduce his standard of living. I hear you protest that this is the kind of person who we should not be encouraging with friendship but it’s not like that, this chap is despairing of his future and has given up on pensions.
He will of course get his state pension and he will get some money from a pot that is getting more remote to him as time goes by. I thought of him when I read this post
For most of us, the reason to keep working is to give up working; or have a wage in retirement that makes us less dependent on income from work.
As I explained to my friend, the hope he has is that in pension credit there is a continuation of what he’s on (universal benefits of various kinds) and this again is a “case study” in what benefits were not designed for.
The purpose of “the dole” is to get you back into pension saving employment
I have also explained to him that there are ways to play catch up on pension by getting into work and making it the priority it needs to be , that workplace pensions are flexible to the needs of those who have the interest to take advantage of subsidies.
But somewhere along the line, my friend has lost sight of financial security from financial inclusion in work. My friend is in his fifties now and there is for him, as for many in their fifties, the possibility of having no work to go back to. Like some of those who have commented, I don’t see a “when he goes back to work” for a lot of people.
Financial inclusion for him is minimal, there is not a way back into work in his head.
So this subsequent conversation in comments to Johan’s post leaves me none the wiser
I think the issue for Bryan, whose question follows is just what Johan is proposing
My friend would most like to think that there’s a pension he could recover for all the years he hasn’t been at work. Could there be an orphans fund that encouraged people to return to work – whether employed or self-employed but promised deferred pay in pensions?
Maybe, but this doesn’t look what Johan has got in mind and I’m quite sure that it would not get to first base here in Britain,
In due course , the self-employed and people wanting to buy their way back into funded pensions – in badly pensioned work. will be able to buy more private “collective” pension in the UK. But annuities and alternatives will be an answer only for those who come into money. The entire money purchase system has depended on the money coming from work – that’s the way the taxation system works. People’s income in retirement is paid for by saving when at work.
Meanwhile, those not in work who have no money have nothing but the state pension and pension credit. Neither are funded but pension credit is a targeted promise. It’s made by those who pay tax to support those who for whatever reason have no prospect for income to meet minimal needs (it is very much means-tested).
I guess the answer to Johan’s question is terribly simple. I have recently published other people’s sympathy to those who in early years of their careers have decided to prioritise other things than pension contributions and so miss out on those of employers and the rebates from the taxman (paid as an incentive to put money by). I do not agree with sympathy for this because I know people my age (mid sixties) who cannot play “catch up” and in my friend’s case have their best bet in a means tested state top up to a state pension.
I’d be interested to hear Johan’s proposal as I’d like to discuss it with my friend who I think is going down the wrong track in giving up any reward but benefits.