The furlough scheme in the UK is coming to an end – and the job loss announcements are starting. Last week alone, Greene King has said it expects 800 jobs to go. Cineworld has put 5,500 at risk with the closure of its cinemas and school trip specialist PGL has said it has to cut 670 jobs – one-quarter of its workforce.
With the new round of regional and national lockdown restrictions, it’s fair to say that these numbers represent the tip of a very nasty iceberg. However, there is one group in the UK that might be worrying less than the rest of us about their immediate futures: politicians.
They may lose their jobs at the next election, of course. But for MPs that’s a few years off (it’s a bit sooner for MSPs). And even if they do, they will leave with something the rest of us would love to lay our hands on and something I’m pretty sure most Greene King and Cineworld workers can barely imagine the joy of: a defined-benefit pension scheme and the security that comes with it.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Let’s have a quick look at how this works. Take the Scottish Parliamentary Pension Scheme. For every year they work, members of the Scottish parliament accrue one 40th of their salary as pension, up to a maximum of two-thirds of their final salary. So, to get the maximum, they need to work for just under 27 years (nice!) After ten years at work they will get a pension of £16,000 a year.
For comparison purposes, someone in the private sector putting away 11% of the same salary (the amount MSPs contribute to their pension schemes) with the standard employer contribution of 3% in a defined contribution pension could hope to save enough to produce an income of about £4,000, assuming no stockmarket crashes. Not all public-sector pension schemes are as generous as this, of course, but you get the idea.
The key point here is that, from the age of 65, the money will just arrive for politicians in these final salary schemes. Month in, month out, regardless of pandemics, business-blind government policy, recessions, unemployment, stockmarket crashes, shifting bond yields or trade wars, a dollop of cash will land in the bank accounts of these retired parliamentarians every month for life. Whatever keeps them up at night, it won’t be retirement planning. For that, they can rely on the deep pockets of the state.
People are worried about their futures
You, I’m afraid, cannot. The majority of private-sector workers now have the defined contribution (DC) pensions I mentioned above – pots of cash we attempt to build slowly over a career, but which change in value with the movement of markets and come with no guarantees of any kind as to value or income on retirement.
Every lockdown announcement makes them more fragile, as evidenced by, say, results this week from easyJet, an obvious lockdown victim. Anyone holding easyJet shares in their pension portfolio has lost 62% of the value of that holding this year so far.
Our only hope of help from the state, beyond, in extremis, pension credits, is a state pension. We also know we can’t rely on that. Anyone in any doubt about that should note that as of this week, you will not get your state pension until you are at least 66. That will move to 67 by 2028 and 68 by 2039. This makes sense, since we are living longer and healthier lives. But it won’t feel good to anyone aged over 50, whose finances and industries have been slammed by pandemic policy.
In June and July, according to the IFS, nearly one in four employees aged 54 and over, who were working before the crisis, were on furlough. Among those still working, one in five were working fewer hours. Among the self-employed, only one in five reported they could carry on their work as normal.
A lot of those people will already have worked the 35 years required to be eligible for a full pension – and be desperate for it. Worry levels are rising: 8% of this age group expect to retire later than they would have before the pandemic.
Overall, according to a study from Hargreaves Lansdown, 64% of us aren’t confident we will ever be able to afford retirement and one in four of us have changed our retirement expectations thanks to Covid-19. Though this study was done in April, things are unlikely to have improved since.
Just to confirm the misery, finance group Sanlam has a survey showing that 30% of Britons “fear an economic crash could hamper their retirement plans”. That’s up from 20% last year, when people’s biggest worry was getting ill. And the most worried age group? The 55- to 64-year-olds, many of whom have defined-contribution (or money purchase) pensions and no time to build them back up again if it all goes wrong.
Those with defined-contribution pensions who reported a fall in their wealth are six percentage points more likely to be planning to retire later as a result of the pandemic than those without. I daresay the number is rather higher for those who were relying on income from a hospitality business to finance retirement.
What’s to be done?
How can those of us with defined-contribution pensions and uncertain futures find a way to sleep at night? There is a glimmer of hope in the new acceptance of homeworking – something that may translate into longer part-time careers for the over-60s. We should all be aiming to keep a non-investment income going as long as possible.
Other than that, it is about a little pension proactivity. The US stockmarket makes up nearly 60% of the global stock market by market capitalisation. It’s also extremely expensive. The odds are that if you haven’t rebalanced your portfolio recently you have too much of it – and not enough of the rather cheaper, UK, Japanese and emerging markets.
None of these are total bargains by historical standards – but they are at least relatively inexpensive, mostly offering some sustainable yield and are more attractive than zero-interest cash and overpriced bonds. Public servants have inflation protection built in. Now might be a good time to buy your own in the form of a little gold.
You might also consider asking your MP or MSP to look at a few things that might make you feel better. First, the possibility of taking your state pension early.
Baroness Altmann, a former pensions minister, makes the perfectly reasonable suggestion that those who want or need to take their state pension earlier than 66 should be allowed to do so on the understanding that it is lower than it would be otherwise. You can currently delay getting the state pension in exchange for it being slightly higher when you do get it, so why not do it the other way around?
This is something MSPs can do in their pension scheme, by the way. Should they want to take their pension early, they can do so with the proviso that “it will be reduced by 4% for each year you leave early before age 65”. That seems like a reasonable model for the rest of us to follow.
Second, given that we are supposed to all be in this together, how about a policy that might help some of the more highly paid and pensioned politicians and civil servants really start to know how tough it is? Perhaps they could help out with our dismal public finances while living some of the experience of the private sector by forgoing, say, 1% of their pension entitlement for every month businesses of any kind in the UK are forced to be closed.
They’d say that is penalising them for something that is no fault of their own. I’d say we could argue the toss on that one for a while – but nonetheless the virus isn’t exactly the fault of the nation’s small-business owners or defined-contribution pension holders either. We’re all in it together. Aren’t we?
• This article was first published in the Financial Times
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.
The 30 house price hotspots
While we have seen house prices sliding, these sought-after locations have seen prices jump by at least 5% over the previous 12 months
By John Fitzsimons Published
Working parents will be entitled to 15 hours free childcare for two-year-olds from next year
The government has extended free childcare hours to working parents of two-year olds but it won’t be automatic so make sure you don’t miss out
By Marc Shoffman Published
NatWest-owned Ulster bank boosts easy access savings rate to 5.2%
Rates on easy access savings accounts have hit over 5%, with Ulster Bank now giving savers the chance to earn 5.2% on their cash savings. We have all the details.
By Marc Shoffman Published
Moneybox raises market-leading cash ISA to 5%
Savings and investing app MoneyBox has boosted the rate on its cash ISA again, hiking it from 4.75% to 5% making it one of top rates. We have all the details.
By Ruth Emery Published
October NS&I Premium Bonds winners - check now to see what you won
NS&I Premium Bonds holders can check now to see if they have won a prize this month. We explain how to check your premium bonds
By Kalpana Fitzpatrick Published
October’s NS&I Premium Bond winners revealed - have you scooped £1 million?
Two lucky NS&I Premium Bond winners are now millionaires this October. Find out here you are one of them
By Kalpana Fitzpatrick Published
The best packaged bank accounts
Advice Packaged bank accounts can offer great value with useful additional perks – but get it wrong and you could be out of pocket
By Tom Higgins Published
Energy bills to fall 7% under new price cap
Energy bills could fall by an average 7% from October under the new Energy Price cap announced today. We explain what the new cap mean for you and when it will come into play
By Pedro Gonçalves Published
Bank of Baroda closes doors to UK retail banking
After almost 70 years of operating in the UK, one of India’s largest bank is shutting up shop in the UK retail banking market. We explain everything you need to know if you have savings or a current account with Bank of Baroda
By Vaishali Varu Published
The best options to earn cashback on spending
From credit cards and current accounts to cashback websites, there are plenty of ways to earn cashback on the money you spend.
By John Fitzsimons Published