When it comes to pensions, I increasingly feel like Mole in Wind in the Willows, trying to navigate his way through the wild wood. “There seemed to be no end to this wood, and no beginning, and no difference in it, and, worse of all, no way out.”
Here’s my wild wood. I began work in 1978, and was contracted out of the state pension for two years. The next three years I was back in. I worked abroad for a year. Was back in the state pension for a year on my return. Had a year off to have a baby. Was contracted in for most of the next 20 years, apart from three years when I opted out. I have paid self-employed stamp for the last decade. My contributions should in theory receive 23 years home responsibilities protection.
Can anyone please tell me what my state pension entitlement will be when I qualify after 2021, because I have absolutely no idea?
Not only that, but the Government is refusing to tell me, which, as part of generations hurtling towards retirement, I find extremely disconcerting and little short of scandalous.
Without it, my retirement planning is effectively paralysed. Will I be able to retire at all over the years ahead? Perhaps. Or must I rather be forced to continue wielding my pen until I am 80? For everyone’s sake, I hope not!
The only comfort is that in the happy old days of pensions forecasting, my state pension estimates were rather encouraging.
And at least I know what I don’t know. More than two million people retiring between 2016 and 2020 after the introduction of the new flat pension are expecting £7,500 from the Government in todays terms, all of which will be uprated annually with generosity previously unheard of.
It has now emerged, thanks to a Freedom of Information request by Hargreaves Lansdown, that half of them will be disappointed. Only 45% will qualify for the full amount.
Part of the reason is that some in occupational schemes were contracted out by their companies. They were told this was for their own good and they would be better off. More toady drivel.
Where they were contracted out and stayed with their company for their entire career, they will get roughly a third less from the state at state pension age.
Crucially only a portion of their pension will be protected against the ravages inflation, leaving them progressively worse off over time. Those fortunate enough to have final salary arrangements, in reality a tiny number, will find their advantage wither over time.
On top of this there is little guarantee these final salary obligations will continue to be paid as envisaged in 20 or 30 years time outside the public sector, and further cuts in their retirement income cannot be ruled out.
I suspect the bulk of individuals, though, will have career patterns much like mine, with breaks and switches and periods spent contracted in and out.
Our pension savings will largely come down to what we have been able to save on our own behalf, sometimes topped up by property. Much of these efforts were subject to high charges and poor practices by the pensions industry, leaving our retirement cupboard fit only for old mother hubbard. Ie bare.
The state pension will be important to us, so the news that after working all their lives, 40 per cent retiring up to 2025 – my generation – still won’t get the full new level payment is pretty alarming, not least as my retirement age has been pushed back seven years already. We are truly the generation to have been hammered. No wonder they won’t tell us by how much.
There are those who believe the Government is deliberately withholding this information to avoid dropping a bomb until after the election.
The less conspiracy-minded concede the changes are complex, and Government should be given credit and forbearance. They say despite transitional pain, the flat pension is a good thing, which longer-term will ultimately make retirement planning easier.
Me? I have a bad feeling. We know the level pension was introduced because without it auto-enrolment would not work. We also know auto enrolment is about cutting the Government’s pensions and benefits bill. Most employees will not be any better off and many worse off under the new regime.
Given the state of the nation’s finances, my guess is it won’t be long before the weasels and stouts in parliament decide the new pension is too generous and the annual increases have to go.