Britain's C-grade pension system
Low growth and an ageing population has seen to our pension system, says Merryn Somerset Webb. All the more reason, then, to plan for the future.
There is not a single country in the world that has a "first class" pension system, according to the Melbourne Mercer Global Pension Index. Some were once first class, but thanks to low economic growth and an ageing population are now in need of improvement (Denmark and the Netherlands); most are barely adequate; and some are utterly unsustainable (Japan, Italy). The UK doesn't come out too badly. We get a C+ (Denmark gets a B+) and our sustainability ratio is just under 50% (see Mercer.com.au for how the numbers are calculated) against 38% in France and China, 40% in Germany, and 16% in Italy.
There is however a very long way to go if we want to move up to B+ level. Mercer says we should accelerate the rises in our state pension age; increase the minimum pension payable to the poor; bump up auto-enrolment both in terms of the amount we have people pay in and the number of people covered; and finally restore the requirement that some part of all private-pension provision must come as guaranteed income.
The first bits will all make sense to you my guess is that delaying payment to people of what we should now consider working age (up to 70?), encouraging most people to save more and bumping up payments to those who have not been able to save wouldn't be particularly controversial moves. But the last would reverse the best-loved bit of pensions freedom the right for anyone over 55 to draw down their saved up pension cash as and when they like.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
This matters because Philip Hammond has let it be known that he is planning a "bold" Budget later this month. Might he raise the drawdown age? It hardly makes sense for the UK to be drawing its pension at 55 when most of us will live to 87. Might he change our drawdown rights? He could ask that everyone prove they can create an income equal to the basic pension credit (around £160) before they draw down. Might he aim to nudge more into saving by taking tax breaks from the high earning to subsidise the contributions of the low earning? Industry chatter suggests he is looking at a flat-rate relief system again.
We will know soon. But the fact that we have all these conversations about pension changes at MoneyWeek before every Budget is a reminder that you do not control your pension. The price of the tax relief you have banked is that the government gets to say when and how you can use it. That's why, if you want your personal retirement system to be an A+ one, your investments should be diversified across not just asset classes but investment accounts. If Hammond shifts the access age from 55 to, say, 60, you might wish you'd saved more into your Isas and less into your pension.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
Unite union takes legal action over Winter Fuel Payment cut
The union has applied to the High Court for a judicial review of the government’s decision to cut the Winter Fuel Payment for all but the poorest pensioners
By Katie Williams Published
-
Is now a good time to invest in silver?
Investing in silver is a riskier play compared to gold, but there are reasons to believe that it could be a good time to buy the ‘devil’s metal’.
By Dan McEvoy Published
-
Beat the cost of living crisis – go on holiday
Editor's letter As inflation rages, energy bills soar and the pound tanks, what’s a good way to save money this winter? Go on holiday, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
How capitalism has been undermined by poor governance
Editor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
By Andrew Van Sickle Published
-
Don't be scared by economic forecasting
Editor's letter The Bank of England warned last week the UK will tip into recession this year. But predictions about stockmarkets, earnings or macroeconomic trends can be safely ignored, says Andrew Van Sickle.
By Andrew Van Sickle Published
-
The biggest change in the last 17 years – the death of the “Greenspan put”
Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
By John Stepek Published
-
The wolf returns to the eurozone’s door
Editor's letter The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.
By Andrew Van Sickle Published
-
Things won't just return to normal – that's not how inflation works
Editor's letter You might think that, if inflation is indeed “transitory”, we just need to wait and everything will return to “normal”. But this is a grave misunderstanding of how inflation works, says John Stepek.
By John Stepek Published
-
Car hire and the strangeness of the post-pandemic economy
Editor's letter A global shortage of hire cars and unusually high hotel occupancy rates sum up the post-pandemic global economy in a nutshell, says Merryn Somerset Webb, with enhanced demand meeting restricted supply.
By Merryn Somerset Webb Published
-
Why we need to get a grip on our government
Editor's letter Our government is trying to do too much, enacting policies that are destructive to the private sector. It needs to drop the the feel-good nonsense and create policies that lead to long-term wealth, says Merryn Somerset Webb.
By Merryn Somerset Webb Published