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Last updateMon, 20 Feb 2017 9am

 

Because you're not forever young ...

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Andrew Edwards comes up with some good reasons why young people will benefit from saving into a pension

Last year, the Money Advice Service found that 21 million adults – four in 10 – have less than £500 in savings. Another study, this time by Investec Wealth & Management, found nine out of 10 millennials (those aged between 18 and 35) blame their failure to save on the high costs of living. It's probably no wonder then that saving into a pension tends not to be a main priority for young people.

This is a worrying trend. For decades, past generations have enjoyed being enrolled into attractive, final salary, 'defined benefit' schemes. Furthermore, they didn't really have to think about it or do anything, it just happened. Then one day as if by magic, they reaped the benefits. The financial crisis of 2008, which saw interest rates slashed, was the beginning of the end for this particular golden goose as far as final salary pension schemes are concerned. In 2016, and especially since Brexit, things have got steadily worse and companies have been squealing about the soaring cost of their old salary-linked pension promises after another interest rate cut triggered tumbling bond yields. The result of all this is that young people are going to have to think differently about making adequate provision for retirement.

So what will motivate young people to take responsibility for ensuring they have saved enough to be able to afford to live comfortably in retirement? I believe there's a lot more to it than just affordability. Talk to most people in their teens and early twenties about pensions and they glaze over like you've asked them to empty the dishwasher or tidy their bedroom.
I quizzed a friend of the family, Lizzy, 23, a primary school student teacher from Paignton, Devon about her views on pensions. At first I could see her thinking "I can't believe you are asking me about this" but after overcoming the initial shock she was happy to give me her views. Like many people of her generation, the concept that one day she would reach age 55 was like seeing a very small dot on a very distant horizon – so far away that it really wasn't relevant; or was it?

Being a reasonably intelligent young person she could clearly see the sense of saving for retirement but had no idea of the mechanics or amounts required. Surely a pension is something that comes later in life as there are many other monetary hurdles to clear first. "Isn't it more important to save for a deposit on a house she asked, or consider paying off my student debt?" I could see Lizzy's dilemma in juggling her priorities – locking away money for over 30 years is alien to her especially for someone who has yet to own her own property. "And then of course, I've seen a nice pair of shoes that I'd like..."

I asked Lizzy if she was aware of any incentives for saving into a pension – did she know about tax relief? This drew a blank. Did she receive any financial education at school or college? Another blank. She didn't think there would be a State Pension for her when she reaches retirement age and so the prospect of working until 70 or 80 in a noisy classroom of seven year olds suddenly became less attractive! In reality, her employer will make reasonable contributions for her enabling her to stop working earlier than that. However, not everyone will be as fortunate as her, particularly someone who is self employed for example and whose spare cash may be limited whilst they are developing and building a new business.

So how much should young people put aside to achieve a minimal income to bridge the gap between 65 and 70 when they start receiving a State Pension? A 22 year old would have to save an extra £39,000 if they want to match the £7,800 a year State Pension for five years, allowing them to retire earlier (Source: Guardian Money).
Never easy, I know with so many demands on hard earned cash. The important thing is to start planning and saving something from an early stage as the earliest pounds saved are the most valuable.

Here are a few more reasons why young people will benefit from saving into a pension:

Tax Relief – currently, pension contributions benefit for relief from income tax and, if your employer has a salary sacrifice arrangement in place you will also receive relief on the National Insurance. Even though you are giving up some of your wage to gain this tax relief, over the long term you will retain more of your salary for your personal benefit, as opposed to losing it to the government in tax you would otherwise pay.

Employer contributions – take advantage of the additional pension contributions that your employer is obliged to make for you from their coffers if you join an auto enrolment scheme.

Future of the State Pension – don't rely on this being around in 50 years time. A personal pension will give the flexibility and safety net of being able to stop work (if say, your health is against you) or perhaps take a change in direction from age 55 onwards. By starting early, the bigger the fund is likely to be, which will mean being able to enjoy a comfortable retirement for longer. The bigger the fund also means the larger the 25 per cent tax free element will be giving you options to use this as you please.

Pensions aren't trendy or sexy and to most young people they are about as exciting as filling out a tax return for the first time on a wet Sunday afternoon. The important point to remember is that people are living longer, often leading busy lifestyles, and with the opportunity to travel more and spend more than ever before. Parents, governments of all political colours and the media, should play their part in encouraging saving for the future; when the day comes I'm sure our children will thank us for it.

Andrew Edwards is Client Services Manager at the Pension Drawdown Company


Green "must face up to evil he has done"

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Sir Philip Green behaved in an "evil" manners towards BHS employees, commons work and pensions committee chairman Frank Field has insisted.

During Sir Philip's time at the helm, his family took more than £400m in dividends and rent payments from the company, which later collapsed at the expense of 11,000 jobs and putting more than 20,000 pensions at risk.

Serious Fraud Officials look set to meet MPs this week to discuss the tycoon's role in the collapse of BHS.

Referring to Sir Philip's appearance before the committee investigating the collapse of BHS and its £571m pensions deficit, Mr Field said: "He said he was going to 'fix it, fix it, fix it [...] He hasn't done so."

In open letter to Mr Field, Sir Philip wrote: "Even before the parliamentary inquiry started hearing from witnesses, you turned it into little more than a kangaroo court, with your constant press campaign barracking and insulting me and my family and your announcement from day one that the predetermined result of the inquiry was that I either sign a large cheque or lose my knighthood.

If you continue to hurl daily abuse at us, any failure to arrive at a pensions settle will be solely done to you and the blame will lie at your door."

Sir Philip is facing mounting pressure to be stripped of his knighthood and to rectify the black hole in the wake of a damning joint report by two commons select committees, which accused the retailer of seeking to avoid blame in the pensions scandal.

It has also emerged that the Pensions Regulator has opened a fresh investigation into Sir Philip's Arcadia retail empire amid concerns about a growing shortfall in the pension scheme of Topshop and Dorothy Perkins.

Writing in The Telegraph, said: "While the specific targets of the MPs’ ire may have been Mike Ashley and Sir Philip Green, the reports have tarnished the reputation of business as whole.

"If a company with a large pension fund is being acquired, there should be a referral to the regulator to make sure the members of the scheme have been adequately considered."

How the BHS pensions scandal unfolded

Not for the first time in recent months, the issue of pensions has hit the headlines and become a topic of concern for all
areas of the business and not just the finance function.

When former retail stalwart BHS went into administration in April this year, it left a pension deficit of £571 million for more than 20,000 members, which has caused outcry from members of the public and the finance community keen to understand how this failure could occur on such a scale.

One of the most fractious incidents in the scandal has undoubtedly been the interrogation of former owner and Arcadia boss Sir Philip Green who appeared before MPs at a joint hearing on 15 June. During the fiery session, which took a decidedly personal turn as Sir Phillip sparked controversy by barking at Conservative MP for Bedford and Kempston, Richard Fuller: “Do you mind not looking at me like that? It’s really disturbing.”  And Green also admitted, “I can answer virtually no questions on the pension”, but that “someone had quite clearly fallen asleep at the wheel”.

The pension scheme, ominously named Project Thor, now looks set to be absorbed by Pensions Funds at a cost of £275 million.

Getting personal

In another particularly fractious moment of the scandal, the beleaguered Sir Philip demanded an apology for what he deemed “an outrageous outburst” from MP, Frank Field. When Field alleged the scandal had given the impression that business was about “nicking money off other people”, Sir Philip furiously replied “accusing me and my family of theft is totally false and unacceptable on any basis.”

 Field said: “What’s required is a very large cheque from the Green family who have done so well out of the whole of this.

“The image you put over is that everybody in business is not about creating jobs, about spreading wealth but nicking money off other people.”  Green responded: “Mr Field’s outrageous outburst today demonstrated yet again his clear prejudice against myself, my wife and my executives, who turned up for a second time.”

The role of the media

For many observers, one of the most remarkable aspects of the debate has been to again underscore the disastrous PR potential of a mismanaged pension, which had been previously brought into focus by the Tata Steel scandal. As part of the Tata fallout, some 700 employees risk losing up to £20,000 a year if the fund is transferred to the Pensions Protection Fund.

“There are a number of things that have put pensions into people’s consciousness during the past five or 10 years and so much of it is positive,” says president of the Pensions Management Institute, Kevin LeGrand. “However, when a story like this breaks with a big household name, it does make people start to think about it and relate that to their own experience.”

One thing is clear, the debate surrounding BHS will continue for months and potentially years. “We are still a long way from the end of the BHS story,” he says. “There is a valid concern, in the pensions industry that, although it’s useful to have an open public discussion about these issues, it needs to be a balanced discussion.

“It is quite easy to focus on one particular case where something might appear to have gone wrong, in terms of the outcome not being as good as people had hoped. But in context, this is one scheme out of thousands that work perfectly well. It is human nature to concentrate on the bad news but lessons can be learned when things have gone wrong.”

Remember to keep an eye out for future issues of the magazine and our website for more coverage of the awards, and updates on the BHS scandal as it unfolds. 

Green demands apology in BHS pensions row

Former BHS boss Sir Philip Green has called for an immediate apology from MP Frank Field following a series of remarks comparing the retailer to Robert Maxwell.

Speaking to Radio 4’s Today programme, Field, one of the leading figures investigating the collapse of BHS, said: “I’ve always thought Maxwell meant to pay the money back. He was just going all over the place borrowing money to keep his companies going. When the music stopped he had no money.

“Sir Philip Green has a huge amount of money – unlike Robert Maxwell – if he wishes now to make good the pension deficit to those 22,000 pensioners he could do it.

“He just needs to get his chequebook out and start writing a cheque to cover the huge pension deficit. He has wealth beyond the dreams of avarice and should act.”

Field also added that Green “behaves like Napoleon” and must himself pledge at least £571m to fund the retailer’s pensions blackhole.

Sir Philip has since demanded an apology with a law firm acting on Green’s behalf calling the statement “highly defamatory and completely false”.

Field’s remarks come after the publication of a damning report into the collapse of BHS published on Monday, which claimed Sir Philip left BHS “on life support” and represents  “the unacceptable face of British capitalism”.

Following the publication of the report, there have been numerous calls for Sir Philip to be stripped of his knighthood.


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