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DWP: complex pensions put public off planning for retirement

by Alex Steger on Nov 27, 2012 at 08:03

DWP: complex pensions put public off planning for retirement

Pensions are too complex with the majority of the public unconfident about saving for retirement, the Department for Work and Pensions (DWP) has found.

The DWP’s Attitudes to Pension survey 2012, which canvassed the views of 1,949 adults in the UK, showed knowledge of pensions and understanding of state pension rules had reduced since the last survey in 2009.

The research found that 60% of the public did not feel they knew enough about pensions to confidently decide how to save for retirement.

There was confusion over the state pension and particularly the state pension age with 60% of women expecting to reach the state retirement age sooner than they will, 38% of men also thought they would receive their state pension sooner than they will.

One in four men also thought they would not receive their state pension until they were 70 or 75.

The government acknowledged that rapid reform of pension rules was to blame for the public’s declining understanding.

It said: ‘Collectively self-assessed knowledge of pensions as a whole and state pension issues had reduced, which may be related to the ongoing and relatively rapid changes in pension policy.’

Pensions minister Steve Webb told the Daily Telegraph: ‘Too many people are put off saving for their old age by a pensions system which is too complex and too few know clearly what they will get when they retire.’

25 comments so far. Why not have your say?

Arthur Schopenhauer

Nov 27, 2012 at 08:21

Strange analysis

Pensions are not trusted as they have consistently failed to live up to the promises. As long term plans they have suffered from short term political raids by the treasury

The greatest failures have been in state sponsored arrangements The state should keep out of areas where they have no demonstrable skills and they might copy Australia on ones that work (oops they just did that)

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David Trenner - Intelligent Pensions

Nov 27, 2012 at 08:26

"Pensions minister Steve Webb told the Daily Telegraph: ‘Too many people are put off saving for their old age by a pensions system which is too complex and too few know clearly what they will get when they retire.’"

And he never knew pensions before Simplification!!

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Smithling via mobile

Nov 27, 2012 at 08:28

I actually find the 60% confidence stat scary.

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David Severn

Nov 27, 2012 at 08:31

On what planet has Mr.Webb been living that he feels this to be a revelation? The fact is that pensions have suffered from decades of interference by all political parties and it is no wonder that consumers lose trust that the Government of the day will ever keep promises made by its predecessors

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Charles Rickards

Nov 27, 2012 at 08:35

For the vast majority of consumers, pensions are not too complex, they are just perceived to be unaffordable! And this will continue for as long as people believe that the state will support them in retirement.

Unless you are a person looking to maximise contributions, where limit are a consideration, the majority of people only need to know that they get something of the taxman for every contribution they make and they will get a cash lump sum and income for life when they retire, simple!

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Richard Butler

Nov 27, 2012 at 08:36

I don't believe a survey of less than 2000 people is conclusive evidence; this 'research' is flimsy to say the least. I have dealt with pensions since 1974, and my experience leads me to a different conclusion; successive Governments have meddled with pensions legislation constantly in an attempt to curtail tax benefits and raid pension funds.I would rank Gordon Brown's raid on dividend tax reclaims, for example, right up there with Captain Bob's raid on the MGN pension fund. Because the goalposts are always moving, no wonder people don't understand pensions, let alone trust the Government not to steal their savings.

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Nick Teige

Nov 27, 2012 at 08:40

Put financial education on the school curricilum from an early age and actually TEACH people about financial matters. If parents and employers don't understand it how you can you expect the next generation to? Granted, there is a lack of desire and/or awareness to seek advice but how much of that is caused by a lack of basic understanding? The supposedly brightest students all go off to university with no concept of managing money and then spend a decade paying off debt which could be prevented. This could then spent boosting the economy as they may actually have enough spare income to spend on the high street or even......... save for their retirement!!!

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Philip Wise

Nov 27, 2012 at 08:49

So only one in four men were able to answer the question about when they will get their pension correctly, then. I cant see I'll get mine before 70, and if the DWP say otherwise, they are the ones who are wrong!

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Ian Wells

Nov 27, 2012 at 09:17

The man in the pub still thinks £30 per month will get them £18K p.a. when they retire. And when they realise it won't the man in the pub is rightfully upset. Pensions are not intrinsically complicated. The information that circulates needs to be revised. "Your pension should be worth the same as your house". In language that the man in the pub understands, (but does not like hearing).

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Nov 27, 2012 at 09:24

Phe government have a responsibility to educate people in financial matters. Why don't they start public information films with shock tactics showing the massive reduction in income someone will face on state pension only. People use all sorts of bury your head in the sand excuses not to start a saving in a pension. Why is it compulsory to pay NI towards a state pension. Yet you can opt out of the NEST or an equivalent. Politicians are not advisers and meddle at the edges with ultimately the major concern being their political future .

Look at the cock up with drawdown income levels. Why can't they just do things quickly and in the same timescale as a business would do.

If the want to make pensions more attractive then allow tax free cash life events.

10% TFC when you buy your first property.

Same at first child.

Same when any child goes to university.

This would engage people at a younger age and get past the lack of long term planning.

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Tony Kelly

Nov 27, 2012 at 09:24

Philip's right - I know mine has changed but haven't really bothered to work it out as its a safe bet it'll change again so I'm not worried just yet. Reasonable assumption it will be after 70 for me so I'll take more interest as, if and when I reach age 60.

The reality is for much of the public, as it stands, is that the State will not let you starve. You may not have much of an existence, but they won't let you starve.

Once again the Govt have stopped just short for me with NEST, saving should be compulsory IMO, that is the only way, and I believe it eventually will do. I have some sympathy for the generations who have to pay for today's retired through NI (originally intended to provide for your own retirement, afterwards you at least had SERPS) and also save for their own. if this eventually washes through it would be much easier to merge NI & income tax which has needed doing for years.

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Julian Stevens

Nov 27, 2012 at 09:31

The mendacity of politicians never ceases to disgust me. Your party, Mr Webb, is supposedly in coalition with the Conservatives who promised in their pre-election manifesto to undo all the layers of needless and damaging complexity introduced by successive governments over the past 25 years, a promise about which they've precisely done NOTHING since taking office. In fact, they've only made things even worse by cutting both the LTA and the annual input allowance. Why aren't you calling on your government to honour its promise? Talking about the problem of unnecessary complexity but not actually doing anything about it is just pretending to be concerned.

And what about the even greater deterrent ~ the annuity rates trap ~ that you never mention? People may never have understood the ins and outs of pension planning, but what they DO understand is that being forced when they retire to part with 75% of their fund in return for a tax-assessable, non-increasing income of less than 5% p.a. is a CRAPPY deal. Their parents are telling them so. And you and your government are making not the slightest attempt to do anything about it, instead pressing ahead with forcing people to participate in a patently broken system by way of auto-enrolment workplace retirement savings schemes.

On top of that, we hear ignorant and blinkered people like Mick McAteer proclaiming that the root of all these problems is excessive charges. If the system was simpler, then perhaps the costs of advice could come down a bit.

These people need their heads knocked together.

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Smithling via mobile

Nov 27, 2012 at 09:35

Somebody said it above. Personal Finance needs to be a subject taught in school.

I had dinner with a teacher the other night and we had quite a lengthy discussion in DB vs DC schemes and the concept of public sector 'job for life' vs private sector perks.

By the end of the meal we both agreed that even that 15 minute conversation would have been infinitely more useful to both of us in deciding our careers after school than faffing around with humorous interview technique role plays.

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Adam Grant

Nov 27, 2012 at 09:39

People not knowing enough about pensions is not really the reason for pension apathy is it? I don't know much about medicine, but I still go to the doctor when I'm poorly,...

Pensions, like protection have to be sold, and that's why we have financial advisers, who luckily are incentivised to go out there and sell a pension, and as the consumer doesn't have to pay up front for the advice, they happily go ahead with the purchase,....

Oh wait, sorry,...

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Keith Cobby

Nov 27, 2012 at 09:48

This picture of Steve Webb is getting a lot of use - I hope he owns the copyright!

The trouble with pensions is that nobody knows what to do. When you are expected to save for decades you must know at what age and which tax rates you can withdraw the money.

I think the ISA should now replace the pension with perhaps some matched funding or tax relief. Alternatively, as I have suggested previously, Steve Webb should look at the US 401k plans.

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Nov 27, 2012 at 09:55

"................ the Department for Work and Pensions (DWP) has found. "

Doing very well paid research for the DWP must be like stealing from the blind. Everyone else could see this years ago,

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John Smyth 3

Nov 27, 2012 at 10:08

Here we go again. Almost every contributer is ignoring the glaring truth.

The vast majority of the working population who are not high networth can not afford to put much if anything into a pension plan after paying off student loans, buying or renting a house, buying a car, bringing up children etc. etc. They have very little disposable income, are receiving little or no pay rises, redundancy, minimal hours work contracts, jobs being outsourced, working tax credits abolished, and inflation is higher than either of the official figures. Working life for the vast majority of the current generation of working age people has become hideous, that is unless you are above a certain level in the organisation you work for, are a career politician, a high profile sports person, a so called media celeb or you can get in at the top of a Quango like the FSA or MAS..

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Allan Maxwell

Nov 27, 2012 at 10:14

The debate above shows clearly why the public don't trust pensions as there are many inaccurate comments, politicised rants as well as some pedalling of unhelpful myths.

The surplus legislation introduced by Nigel Lawson was probably the start of the rot allowing companies to remove large amounts from well funded schemes by contribution holidays etc. This was compounded by the removal of ACT relief on dividends started by the Tories and finished by Gordon Brown.

Politicians are also culpable for not addressing longevity at a much earlier stage.

The Maxwell scandal in my view is largely a smoke screen. The great and the good got together and produced some pretty useless legislation which increase costs but did nothing that would have stopped Maxwell’s criminality.

We have to remember that the Governments focus is to ensure that the entire population has sufficient income in retirement. Restrictions in the LTA and AA will have very little impact on Mr Average who is probably aiming to retire on an income of around £20k requiring a fund of around £533k. So don’t be surprised if the LTA And AA reduce further.

As for Drawdown the combination of the new rules and QE have resulted in some unfortunate consequences perhaps we should be using Gilt yields!

Pensions are in fact relatively simple during your working life you save during retirement you spend those savings.

The problem is uncertainty, how long will I survive in retirement what will future economic conditions be?

While there are many arguments for and against annuities at least the give certainty at a time when it is most needed. A point that should never be overlooked. Drawdown is more remunerative for advisers but is it in the client’s best interest?

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Nov 27, 2012 at 10:44

"The research found that 60% of the public did not feel they knew enough about pensions to confidently decide how to save for retirement."

Oh joy - let's go round that old loop again.And after that the great and the good can pontificate on yet another new and innovative solution so the politico's can be seen to be "doing" something.

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Nov 27, 2012 at 10:57

All valid comments.

I have always been amused by how the politicians tinker with and steal from pension provision (Mr Brown's 10% heist being one); it's always someone else's fault, and then they spend a fortune on some survey or other in order to evidence the blindingly obvious.

The essential problem is huge overspending on an ever more rapacious state. And that's our fault as a society right across the western world - we want ever increasing standards of living that we can't afford, and the politicians continue add-infinitum to grant it on the altar of getting themselves into power; we get the politicians we deserve, I'm afraid.

In Britain, we have perhaps more than any other country been guilty of using housing as an investment vehicle - and mostly, that has proved very successful for generations since the war, with incredible gains being realised in the main, whilst private pensions have languished very much as an also ran by comparison, is it any wonder people haven't bought into pensions?

But hang on; as we've seen housing become increasingly unaffordable, with an ever larger slice of income needed to fund mortgage repayments for the many, we have millions now left financialy on the ragged edge.

But if we stand back and take on the broader perspective, has this approach actually served our society well in reality? Large numbers of baby boomers would say, yes, but the gravy train has now stopped, and as a society, we have condemmed future generations to reap what we have sown.

So, what's the answer? If we want to maintain the status quo, there isn't one. But if w'ere prepared to bite the bullet, then we need to move to compulsion on retirementy saving.

When people start work, there should be 9% of income paid between employer and employee if starting at 16, 10% at 18, 11.5% at 21 and 12.5% at 23 and that rate should then continue for your working life. End of. House prices would start to fall (boo hiss!), making them gradually more affordable and other pricing efficiencies would also come into play duer to competition. Essentially, if we're all re-educated to the understanding that we simply have to pay our own wages in retirement first, then we will have a more stable, healthy and wealthy society in the future. There will be pain and it will take time, but the bare facts are there - we need a heavily simplified and radical re-think on retirement planning - and the brevity to follow it through.

I'll put my soap-box away now.

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Jonathan Kirby

Nov 27, 2012 at 13:17

Pensions are perceived as complex partly because of the reams of paper we have to give people.

Finding any useful information is nigh on impossible and there is so much negativity in all the warnings that it would put off all but the most determined.

There should be education and it should be drummed into people that they should start saving into their pension plan as soon as they leave full time education.

I still grimace at the way Stakeholder was introduced and all but destroyed the pensions industry almost at a stroke because the survey told the powers that be that people didn't save because 'it cost too much' and some idiot decided this meant that charges were too high. AAAAAAAHHHHHHGGGGG

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Nov 27, 2012 at 13:33

Right on Jonathan!

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Julian Stevens

Nov 27, 2012 at 13:48

Still leading the idiots' charge is Mick McAteer who, almost certainly, has never actually advised anyone on retirement funding or even bothered to find out just what's involved from those of us who do.

I for one have never met anyone who's been deterred from committing money to a pension plan because of charges. Back in the bad old days, a few may have grumbled about Capital Units, index-linked policy charges and early retirement penalties but none ever declared such factors to be ultimate deterrents. Both tax relief and annuity rates used to be significantly higher than they are now and pension funds were allowed to grow totally tax free.

It's ill-informed loudmouths such as McAteer, sounding off from behind the phoney respectability of a lectern, who almost certainly do a good deal more damage than good. If he had anything useful or constructive to contribute to the debate, he'd be talking about excessive complexity, the withdrawal of attractive supplements such as Contributions Insurance and Life Cover and the annuity trap. But, like some blinkered one-issue bull in a china shop, he's got hold of the idea that all the afflictions of the pensions industry stem from high charges and by golly, that's what he's going to shout from the rooftops, even if it means pulling down his trousers to do so.

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John Brady

Nov 27, 2012 at 19:55

That's the problem Ian Wells, my mate was slagging pensions off and said he'd wasted shedloads of money on them.

Anyway, I got authority on the policy and found that he started contributing in 1989 at £20 a month for 3 years and hasn't contributed since. His personal contributions are about £800 in his entire lifetime.

He then started investing in property and has accumulated several hundred thousand pounds worth of property that has cost him several hundred thousand pounds in mortgage payments, council taxes, repairs, decoration,furniture, refinancing packages and credit card accumulation when he couldn't get mortgages but for some strange reason believes he has made a massive profit.

He has all these assets and can barely get a round in in the boozer.

He can't sell the properties and hasn't had an offer on any of them and still wont believe it when I tell him that HMRC will tax the knackers off him on sale because none of these properties have ever been his own personal residence.

I shouldn't laugh, but I am going to.

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Ian Wells

Nov 29, 2012 at 10:00

JB. There's one in every pub!

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