Missing the whole point of pensions

An odd press release arrives from the usually relatively sensible group, ‘Now: Pensions’. It calls for “greater flexibility in pensions to encourage young people to save”.

The reasoning is simple – 58% of 18-35 year olds aren’t saving into a pension. Now: Pensions thinks they should be, so it asked them what would make them do it.

According to 54% of them, the answer is the ability to use their pension pot “to fund a first-time property deposit”. Another 42% say they would be more likely to save if they were offered a financial “kickstart” by “the government” (I think we can safely assume they mean the taxpayer).

This is all absurd. The whole point, I repeat the whole point, of a pension is that it is very long-term saving for a defined purpose – the financial support of a pensioner in retirement.* If you can take the money out whenever you want to buy houses, the whole point is therefore lost.

And as for the business of a kick start, what on earth do Now: Pensions and the 18-35s think the tax relief is? Every time they save into a pension they get all the tax they might have paid on the money back. That’s a huge kick start – at the expense of other taxpayers.

Finally, I would say that the fact that 58% of the young aren’t saving for retirement isn’t all bad news at all. It means that 42% are – a number much higher than I would have expected given that there is no such thing as an 18-27 year old who could care less about pensions.

Auto enrolment muddies the waters here, but look at it like this: if 18-27 year olds aren’t saving for retirement at all it would suggest that not far off 80% of the rest are. Amazing!

*Although I guess that is changing with inheritability – the whole point for the rich is now to use pensions to avoid IHT – we’ll have a report coming out on this soon.