Hi, I'm Ros Altmann. My blog covers finance, pension, economics, investment and retirement issues. I'm an independent expert, advising Government, pension providers and finance companies and also helping consumers. I'm the UK Government's Older Workers Champion.

Don’t just focus on the negatives of pension reform – but need FCA to reform advice

26 March 2015

New Pension rules offer opportunities for better financial engagement

FCA needs to authorise basic advice to help people make good decisions


Last week I participated in a really good breakfast discussion about the Pensions Revolution taking place in the UK, hosted by Investec Structured Products.  Pensions experts Robert Cochrane of Scottish Widow, Tom McPhail of Hargreaves Lansdown and myself were joined by ten leading personal finance and retirement journalists to discuss the pension changes starting on 6th April. It was especially interesting to get the thoughts on the reforms from a wide variety of viewpoints..

I think just about everyone round the table believes these changes are a good thing. This was reassuring, particularly as so much comment has recently focussed on the negatives and risks of the reforms, rather than how they can help overcome the straitjacket of the past system.  Understandable concerns were expressed about the speed with which these radical changes are being implemented, and it is clear there needs to be a much greater emphasis on financial education and information to help people make the most of the new opportunities – and avoid the risks.

These reforms will have a significant impact on the entire investment industry. Gary Dale, from Investec explained alternative investment approaches that could replace annuities and also emphasised the importance of engaging with investors at a young age- I couldn’t agree more. We need 20 year olds to have a grasp of investment opportunities and to be able to react with confidence.  In the past, there has been too much emphasis on encouraging members not to bother to think about their pension investments at all, just leaving it to the industry to give them ‘one-size-fits-all’ default options.  In future, as more investment options become available, the need to improve financial literacy also increases.

This new challenge for the pensions industry is to help people understand investment from the moment that they start saving for their pensions.  Financial education could be embedded into auto-enrolment pensions, so that everyone starts to learn about pensions as soon as they begin contributing. But it is vital that this is done in an engaging way, clear English, no jargon and hopefully some gamification and mobile communications to make pensions more ‘fun ’and ensure the members can understand the basics of investing for the long term.  .

Another important issue discussed round the table was that the FCA rules on financial advice have locked average savers out of independent advice.  The Retail Distribution Review has polarised the advice market towards the wealthiest savers, who pay a fee for financial advice and the majority of the market are left paying commission (often without realising it) to buy products without any advice at all and often making inappropriate choices.

I have urgently called for the FCA to investigate the possibility of authorising a system of ‘simplified’ or ‘basic’ advice, that could be offered at reasonable cost, to help people make better decisions.  Pension Wise Guidance will help, but will only set out people’s options and help them realise what questions they need to ask, it will not give them the answers they need.  It also starts later than people ideally need.

Of course, many people will keep working longer in future, so planning their pensions and savings in combination with work income, will be important for the future.  Starting early and ongoing checks along the way to update financial plans will be needed.  The pension changes give much more flexibility for people to use their pension savings to fund later life in the way that suits them best.

I am sure there will be many more of these roundtable discussions in coming months and I hope this will be just the start of adjusting to the brave new world that is opening up.


March 26, 2015   Leave a comment

A Savings Revolution to follow the Pensions Revolution

18 March 2015

We had the Pensions Revolution last year, now comes the Savings Revolution

  • 95% of savers will pay no tax on their savings – will be popular
  • 5m will be allowed to sell their annuity – that’s great news
  • But cutting Lifetime Allowance for pensions is really bad policy
  • Lifetime limit should only apply to DB, but abolished for DC

So there we have it.  The last Budget before the General Election.  A mix of moves to please as many of the electorate as possible, but without committing massive amounts of extra spending.  There is help for savers, help for first-time housebuyers, but nothing to help with the social care crisis.

The main news this time is the help for savers.  This is unquestionably good news for ordinary savers with 17million people benefiting from the decision to scrap basic rate tax on the first £1000 of savings income each year.  This will be popular, as 95% of savers will not pay any tax on their savings income.  Savers have paid tax on their income when they earned the money, so allowing them to earn interest on it free of tax makes sense.

What might this mean for savers?

People with £50,000 savings may not pay any income tax on their savings:  If we assume savers earn 2% interest on their money, then they can have £50,000 in a savings account and will still pay no tax on their income from those savings.  Even if they earn 4% interest (those days seem like a distant memory but who knows they may return) then someone with £25,000 of savings would still pay not tax on their interest.

Non-taxpayers won’t have to reclaim the 20% tax deducted from their income:  At the moment, banks and building societies have to deduct 20% tax from all interest income before it is paid out and non-taxpayers have to reclaim the tax withheld.  In many cases, this money is never actually claimed as the recipients do not know they have to do so.  Pensioners are one of the groups least likely to reclaim the tax, so this will be of benefit to them.

Higher rate taxpayers will have to pay the additional tax above basic rate and the top 5% of savers will still be able to shelter money in ISAs to receive tax free savings income.

ISA savings will also become more flexible:  At the moment, if you invest the full £15,240 into an ISA at the start of the year and then take some money out, you cannot put more back again that year.  In future, the Government plans to allow you to put money in, then take it out again if you need to and reinvest back up to the full annual ISA allowance later in the same tax year.  It is not clear how this will be tracked and I can foresee some administration issues, but the principle is a good one.

So what about pensions – some good news, some not good news:  After last year’s bombshell, we could not possibly expect a similar scale of change.  Building on the pensions revolution started in last year’s Budget, the Chancellor wants to extend the new idea of freedom and choice much more widely.  However, to pay for the giveaway to savers, the lifetime limit on pensions has been cut sharply again.

Undoing unwanted annuities:  The pensions revolution that proved so popular last year has been extended to try to include those who had already bought annuities before the rules forcing most pension savers to buy annuities were scrapped.  The Chancellor intends to offer those who were previously forced to lock their pension funds into irreversible annuities, the chance to sell them again.  Many never actually wanted, to annuitise or bought unsuitable products and understandably felt most aggrieved that future pension savers had freedoms they were denied.  So a consultation has been launched that proposes allowing people to sell their annuities.  They will receive a cash lump sum that they can either spend – but will be taxed on as income – or can reinvest into a pension drawdown fund and then only pay tax when they withdraw their money.  This is a fair and sensible policy.

Regulatory protection and advice crucial:  Of course there are dangers that people will be ripped off if companies buying their annuities offer a poor deal.  Many annuitants paid high charges when buying the annuity in the first place or received poor value, so that would be adding insult to injury.  Therefore, we need careful regulatory oversight of the second-hand annuity market, perhaps with controls on charges and making sure people get proper independent advice before trading in their annuity.  The Pension Wise guidance service is likely to be extended to offer help and information with the decision, but advice and regulatory protection are really needed.  Of course, nobody will be forced to sell their annuity.  It will be their choice, but one which they would not otherwise have.

There are circumstances in which allowing people to sell their annuity will be sensible: Those with small pension funds and plenty of other retirement income may welcome the chance to take the cash for urgent expenses or debt repayment.  Others may need to provide a pension for a partner which was not included in their annuity.  Those with guaranteed annuity rates that only offered single life products will have a chance to cover their partner and those who prefer to leave their pension money invested for a few more years will be able to do so, whereas under the old rules they would have needed huge sums (around £100,000 or more) to be able to use drawdown.  Controls on charges or other customer protection might be needed, but at least people will not be stuck for life in an unsuitable product.

However, the other big change to pensions is far less welcome:  Cutting the lifetime limit from £1.25m to £1m is very disappointing.  Indeed, in 2014 the lifetime limit was still £1.5m, it is now £1.25m and cutting it down to £1m is a draconian change.  Cutting the lifetime allowance so sharply makes it much harder for people to plan their pension savings over the long-term.  This is expected to raise £600m in extra tax revenue and will hit many people in final salary or defined benefit pension schemes, as well as those in defined contribution pensions.  The Government suggests that only around 4% of pension pots are above £1million and that it will offer protection for those already near or over the limit, however it is really a shame that this policy has been introduced.

Lowering LTA adds more complexity and penalises investment success – both are bad for pensions: Firstly, it makes pensions still more complicated by adding yet another layer of protection into the rules.  Secondly, it is a penalty on investment success.  Surely the point of pension saving is to benefit from long-term investment returns.  That means it makes sense to limit the amount people can put in with the help of tax relief, but does not make sense to then try to punish them if their fund grows sharply.

Lifetime limit far more generous for DB schemes than DC:  The lifetime limit of £1m will allow members of defined benefit (final salary/career average) schemes to have a pension of up to £50,000 a year within the limit.  However, members of defined contribution pension schemes (which is the  majority of workers outside the public sector) could only buy a pension worth around £25,000 for £1m (with inflation linking and spouse protection), so the lifetime limit is unfair in this respect due to the calculation methodology of the rules.

A lifetime limit for DB schemes makes more sense, but should be abolished for DC: For members of defined benefit pension schemes, who do not have an actual pot of money but are promised a specific level of pension, perhaps the lifetime limit makes more sense, since they have no control over the investments and the contributions are harder to measure due to fluctuations that occur depending on the scheme’s assessed funding levels.  With defined contribution schemes, the better policy would be to control the amount put in each year but then allow the pot to grow as well as it can, without penalising it if it rises strongly.  Therefore, I would like to see the Lifetime allowance abolished for DC schemes.

Nothing for long-term care:  It is disappointing that there are no new measures to help or encourage or incentivise people to put money aside for funding long-term care needs.  Families are not prepared for care, nor is the Government, yet there is a crisis looming which could eat up the resources of many families who might have been able to put some funds away if they had known about it – and could also bankrupt the NHS.  The next Government will have to get to grips with this crisis urgently, time is running out.

Help for younger first time housebuyers with a pension-style ISA plan:  The new ‘HelptoBuySA’ effectively turns the savings of young people preparing for their first house purchase into house pension plans, by offering the equivalent of basic rate tax relief on their savings.  If they need a house deposit of £15,000 for their first home, they will only need to actually save £12,000 and the Government adds the additional £3,000 they require.

March 18, 2015   2 Comments

Cashing-in annuities – Budget consultation will pave the way to sell unwanted annuities

15th March 2015


The pensions revolution rolls on!  Pension freedoms extended to current pensioners too

At last, some hope for millions of people trapped in products they never wanted to buy

Of course there are risks, but Regulator and Pension Wise can help protect customers

 The Treasury will consult on how best to establish a market for second-hand annuities.  This will be popular option with many of the five million or more people who have bought annuities in recent years.

Annuities have become worse value but people still forced to buy:  Annuities have become much worse value since the start of this century, but people were still forced to buy them as there was no other way for many to take money out of their pension funds.  The rules required anyone who wanted to withdraw some cash from their pension savings to ‘secure an income’ and if they did not have very large amounts in their fund, they had no other option – they had to buy an annuity.

Those with largest pension funds could avoid annuities:  Those with large funds did not have to annuitise, but the vast majority had no choice.  And, until now, once they had bought the standard type of annuity, they had no chance to change it, they were stuck with it for life.  (Selling the annuity income might have been theoretically possible, but would face a tax charge of between 55% and 70%, so this was not a realistic option).

Government will consult on second-hand annuity market:  Of course, the Chancellor’s last Budget swept away those old rules, but those who had already bought an annuity seemed stuck.  Not now though.  A consultation will start on 18th March on how best to establish a market for second hand annuities.

Why might people want to sell their annuities? Those who were forced to buy an annuity under the old rules but never wanted to have been writing to their MPs to complain about the unfairness of being forced to buy an irreversible product, when they would not need to do so under the new rules.  There are many who would much prefer the lump sum, or the chance to leave the money invested.  For example:

  • They may have significant other pension income – this pension fund might have been an AVC (Additional Voluntary Contribution) fund that supplemented a guaranteed final salary pension.  Someone receiving £20 a week from a £20,000 AVC, might prefer to have a cash lump sum, even if the amount is discounted for transaction costs.
  • They may have large debts, or a mortgage, that they want or need to repay
  • They may need money to pay for health or care needs or other urgent spending
  • If someone has become very ill and is unlikely to live long, or needs to pay for care, they might find a lump sum more useful, even if it is much less than their original pension
  • People who had several pension pots and annuitised them might now prefer to take some as cash, or leave them invested in a new-style drawdown fund.

From April 2016 people should be able to sell their annuity for a lump sum or drawdown:  From April 2016, the Government intends to start a market for people who want to sell their annuities to the highest bidder.  The amount they receive in exchange for their annuity income can either be taken as a lump sum, taxable as income, or put into a pension drawdown product and any withdrawals would then be taxed as income.

This is an option people didn’t have before:  Most people will probably decide to hang onto their annuity, but many may have good reasons to want to consider selling it on.  They will not be forced to, it will be up to them, but at least they will have the choice to do so, whereas until now their fund was gone for ever.

Isn’t there a risk of another mis-selling scandal?  Of course there are risks.  But the risks are no different to those which exist under the new pension rules and allowing people the option to cash-in just addresses some of the unfairness between the past and the future.  Commentators have criticized the proposals on the grounds that customers are likely to receive very poor value, as they will be offered very poor value and charged unfairly high sums to cash-in their annuity.  They note that people often received very poor value and paid high charges to buy the annuity in the first place and will now lose out a second time when selling it back.  It is certainly true that many people bought poor value, unsuitable annuities, but that is not a reason to deny them the chance to undo the deal.

Customers need protection, guidance – and ideally advice:  Given the risks of customers receiving poor value, the Treasury needs to ensure that the FCA regulates the second-hand annuity market carefully.  Customer protections must be put in place, since pricing an annuity is a complex transaction and, especially if there are few players in the market initially, it is important to have checks and controls on pricing structures to ensure customers are treated fairly.  The Government is also planning to consult on how the Pension Wise service can be extended to offer people financial guidance so they understand the risks of selling their annuity and help them find a good rate – although ideally, they would take independent financial advice.

Only fair to give them a choice:  Nobody will have to sell their annuity, it will be their choice.  Unlike when they purchased it, they will not be forced to cash it in and many will not wish to.  However, giving them the option is only fair.  Many of those who bought annuities understandably feel aggrieved that their money has gone to an insurer in exchange for a relatively low income with no inflation protection, whereas future pension savers can enjoy full freedom to choose what is best for themselves.  This is a popular and sensible decision which will be warmly welcomed by many.



March 15, 2015   3 Comments

Cashing in unwanted annuities

12 March 2015

  • Why allowing people to unlock annuities makes sense
  • Millions forced to buy unwanted annuities would now have an option to cash in if they need to
  • Nobody will be forced to sell their annuity back, but they can if they need or want to

The proposals to allow people to cash-in annuities that they were forced to buy under the old pension rules could prove popular for many of those who have unwanted or low value annuities.  Millions of people previously had no choice and had to buy an annuity with their pension savings, even if they didn’t want to.  The old rules, which have now been swept away meant that anyone without a very large pension fund had no other option apart from annuity purchase if they wanted to access their pension.

Who would benefit?

People who purchased an annuity because they had no choice but need the money now to repay debts or pay for health or care needs or other urgent spending.

People who have other pensions and for whom the annuity is not an important source of their retirement income.

People who purchased small annuities, for whom the small amount of ongoing income will make little difference to their standard of living in retirement.  For example, someone with a £5,000 pension fund who bought an annuity at age 60 might have less than £5 a week for life, whereas having a few thousand pounds straight away could make a real difference to their lives.

What are the risks?

There are risks that people will be offered very poor value and charged unfairly high sums to cash-in their annuity.  Of course, they won’t be forced to sell it, it will be their choice and if there are a few companies bidding for their annuity this may help improve the value offered.

There are risks that people will be enticed into selling back their annuity and later regret it.  This risk is the same as exists under the new pension rules, where people do not have to buy an annuity in the first place.  It is not a reason to deny the opportunity to those who were forced to buy an unwanted annuity in the past.

There are risks that people will cash in their annuity, spend all their money and then have to live on state benefits as they become poor in retirement.  This risk is no different to that which exists under the new pension rules and it just helps remove some of the unfairness between the past and the future.

Many of these people have written to me complaining that they didn’t want or need an annuity and would much rather have a cash lump sum to spend as they wish, rather than an income for life that has no inflation protection.

For those people who have annuitised relatively small sums, the amount of income they receive from their annuity will be very small, especially as annuity rates have plummeted in recent years.  Yet, if they wanted to take their tax-free cash, they had to take an annuity with the remainder.

Many people bought unsuitable annuity products or bought an annuity that does not cover their partner and, especially those with large debts to repay or in need of a lump sum for essential expenses, the opportunity to get money back rather than just taking an income will be a welcome option to consider.

Even if these proposals go ahead, nobody will be forced to sell their annuity, it will be up to them.  But the reason this policy is right is that it would give people an option that they have never had before.   Until the Budget pension changes, people who bought an annuity were stuck for life.  If they had bought an annuity they didn’t need or the wrong type of annuity, it was just hard luck, they were stuck.

I have heard from so many people who are furious that they had to buy their annuity in the past couple of years, whereas if they had been younger the new rules would have meant they could have avoided locking all their pension savings into a product they did not want.

Of course there are risks with such an option being offered.  People would be swapping a guaranteed lifetime income for a pot of money today that they could spend.  They will therefore not have that income in future years.  However, they will not be forced to cash in, it is just an option they would have that they have been denied up till now.  The guaranteed income is not normally inflation linked, so its value will erode over time and if people have other pensions elsewhere, they may feel it is more sensible to have some cash instead.

If someone has become very ill and is unlikely to live long, or needs to pay for care, they might find a lump sum more useful, even if it is much less than their original pension.

Of course, insurance companies would charge to buy back the annuity income, the cash-in value would be less than original pension and would depend on assessments of health and life expectancy.  However, as nobody is forced to sell their annuity, it is just an option for them, this is not a reason to deny them the chance to change their product.  They should be required or encouraged to take independent financial advice to explain the risks of re-selling and help them find a good rate, but if they still believe this is what is best for them, they would then have the chance to undo their unwanted purchase.

Overall, this is an idea worth pursuing and could help so many people who are currently stuck in an annuity that they never wanted to buy.  It is only an option, and unlike the past rules which forced people to lock their pension savings into a potentially unsuitable or poor value product that did not meet their needs, it gives them the chance to choose what they want to do.  As people will be able to do in the new pension regime.

March 12, 2015   4 Comments

Older Workers Face Discrimination and Disadvantage in the Labour Market

11 March 2015

  • Overcoming barriers to later life working can boost prospects for old and young
  • Government needs a strategy for adult skills, career reviews and must improve JobCentres
  • Older workers are good for the economy, good for business and good for younger workers too

My Business Champion for Older Workers Report, published today, explains the case for ensuring the over 50s can stay in employment if they want or need to. The Report ‘A New Vision for Older Workers – Retain, Retrain, Recruit’ identifies significant failings in labour market practice and a lack of joined-up Government policy for the ageing workforce which will mean lower economic growth and greater burdens on younger generations in future years. The Report puts forward wide-ranging recommendations to Government, Business, media and individuals themselves which would address these failings to the benefit of us all.

Encouraging and enabling those who want to work longer is an idea whose time has come. As the Report explains, it has the power to increase our country’s economic activity significantly in the coming years. You can link to my Report here.

Older workers could boost the economy: Research by the NIESR shows that if all over 50s worked an extra 3 years this would add a massive £55bn a year to our economy (up to 3.25% to real GDP per year) by 2033 which is equivalent to an extra £55 billion in 2014 GDP terms. Even if everyone worked one year longer it could add 1% to growth.

Higher lifetime income and higher pensions: Enabling those who want to keep working in later life to do so, can mean higher lifetime income for millions of people, more output and spending power in the economy which will mean higher economic growth and better living standards for all of us. If individuals work three years longer on average earnings of £25,000 a year, they would earn an extra £75,000 in their lifetime and could have a pension 13% larger to spend for the rest of their life.

I hope this report marks the beginning of a great national debate. My findings and recommendations have the power to improve the working lives and the lifetime incomes of Britain’s over 50s. They could also transform the long-term future of British business and the economy.   The over 50s are a major untapped resource – a hidden talent pool that can boost output, employment and living standards now and in the future. Academic and historical evidence shows that, far from damaging job prospects, keeping more older people in work is associated with rising employment and wages for younger people.

Immigration can’t replace the numbers of over 50s who might leave work:. By 2022, there will be 700,000 fewer people aged 16 to 49 in the UK – but 3.7m more people aged between 50 and state pension age. If the over 50s continue to leave the workforce in line with previous norms we would suffer serious labour and skills shortages, which simply could not be filled by immigration alone.

This does not mean fewer jobs for the young – more older workers means more employment for younger people too: Research shows that having more over 50s in work is associated with both lower unemployment and higher wages for the young.  It is not true that each older worker in a job, denies employment to a younger person. There is not a fixed number of jobs and the more spending power in the economy, the more jobs can be created. In an individual company there may be a fixed number of positions, but only over the short-term. If demand for the company’s goods or services declines, it will reduce the number of jobs, but if demand rises, more jobs are created. This also applies to the economy as a whole. So keeping more older people in work, means they have more money to spend. Conversely, if more older people stop work, they will have lower spending power and ultimately there will be fewer jobs for younger people.  Historical evidence supports this conclusion too. For example, the 1970s ‘Job Release Scheme’ tried to encourage older people to leave work and ‘release’ jobs for the young, but the policy failed. Rising early retirement was accompanied by higher unemployment for younger people. Economists subsequently concluded that encouraging more older people to retire does not increase employment prospects for young people over time. It can actually have the opposite effect.

And Surveys show people want to work longer: The results of a nationwide YouGov poll commissioned for the report showed that around half of non retired over 50s wanted to still be working between ages 65 and 70 and only 15% of non-retired over 50s said they would want to stop work altogether between ages 60 and 65. If the results are applied to the whole UK population, this suggests 4.8million people want to keep working and not be retired between ages 65 and 70. Currently, there are around 1.2 million over 65s still in work. Therefore, there is potential for a significant rise in later life work. More than one in five of those already retired say they wish they had worked longer (equivalent to 2.3million people nationwide) – with 38% saying they miss the social interaction of work, indeed far more than the 27% who say they miss the income.

Traditional retirement outdated: Traditional ideas of a fixed, one-off, retirement date are changing, as the survey shows that nearly two-thirds of over 50s do not believe working full-time and then stopping altogether is the best way to retire. They prefer a period of part time work first.

Report finds significant evidence of unconscious bias and age discrimination: Older people face major hurdles in recruitment, which can be made worse by lack of confidence, inadequate up to date qualifications, long-term health conditions or the difficulty of combining work with caring. Many over 50s are affected by some or all of these factors, with older women facing particular problems.

Older women can face particular problems in the labour market: The cohort of women who are now reaching their 50s and 60s have been especially disadvantaged in terms of lifetime income and pensions, and face particular workplace barriers. They are more likely than their male colleagues to be carers which can have an impact on how they manage work, and although both men and women can face various health challenges as they get older, women have a particular health issue which is largely ignored in workplace thinking – the menopause. The potential impact of this important life event should be taken more seriously, talking about it more openly in the workplace and introducing support for those affected.

Although the Government has made a start by abolishing the default retirement age, more, much more, is needed. There remains significant ageism in the workplace, with older workers facing barriers to promotion, to training opportunities, to re-skilling and to returning to work after time out due to redundancy or caring.

To address these barriers, the Report suggests that employers and Government need to focus on the 3 ‘R’s:

  • Retain – keep older workers and their skills in the workplace through, for example, flexible working;
  • Retrain – provide ongoing workplace training irrespective of age and opportunities for mid-life career reviews; and
  • Recruit – stamp out age discrimination from the recruitment process.

I hope that the next Government, whatever its makeup, will embrace the recommendations contained in my report. This must not be a political issue, it is of national importance regardless of politics. JobCentres are too often failing older applicants. Older workers need new skills, more opportunities for flexible working and retraining and career review help.


  1. Adopt a joined up Government approach to tackling ageism. Consider appointing a national champion for older workers and funding detailed research of the economic, business, health and wellbeing benefits of longer working lives.
  2. Introduce a national strategy – across Government departments – to improve adult skills, with funding for mid-life career reviews and apprenticeship schemes for all ages.
  3. Tackle age discrimination by imposing penalties for breaking the law; encouraging whistleblowing against ageism in the workplace; introducing codes of good practice for recruitment or possibly even launching a formal investigation of the recruitment industry if discrimination persists.
  4. Improve JobCentre programmes for over 50s jobseekers, with more early intervention, one-to-one support, better IT training, CV and social media skills help, and track the outcomes data to see what works.
  5. Consider introducing temporary two year National Insurance relief for employers of older workers and ensure the current relief for employees over state pension age is more widely known.
  6. Consider introducing Social Impact Bonds to fund back-to-work programmes and training for long-term unemployed older workers or returning carers, which can deliver savings to Government by lowering benefit spending, boosting tax revenues and reducing health spending.


  1. Plan effectively for an ageing workforce – with line manager training, age and skills audits and offering flexible working, gap breaks and family crisis leave – to help older workers combine caring with their working life wherever possible.
  2. Offer training, and retraining, opportunities regardless of age, including for those who need to move from physically demanding roles to lighter work.
  3. Ensure there is no unconscious bias or age discrimination in recruitment – monitor age of new hires, consider using a strapline in job adverts to confirm vacancies are open to all ages (such as ‘all ages welcome to apply’) .
  4. Eradicate the gender and age discrimination which impact women in the labour force, with many saying ‘talent progression’ stops at age 45 for women (and age 55 for men). Don’t overlook the needs of older women, especially with support through the menopause.


  1. Don’t write yourself off when you reach your 50s or 60s, rethink retirement and perhaps consider flexible working or downshifting rather than stopping altogether.
  2. Let’s have new images for old people – old age needs a media rebrand -and more older women on visual media: Wizened hands and walking sticks are inappropriate images for stories of older people and contribute to negative perceptions of over 50s. I urge the visual media to use more older presenters, especially females and to stop using the road signs showing stooped over people when writing about the over 50s. I would like the Government to abandon these signs as they feed into the negative subliminal perceptions of old age.

Many businesses have already recognised the opportunities: I have been encouraged by the groundswell of support for reform across a growing number of industries – not least in the Business Taskforce which I established. Two members of the Taskforce – Barclays and National Express – have introduced new apprenticeship schemes aimed at older workers. There are many reasons why businesses can benefit from keeping on or taking on older workers, as well as young recruits.

National Express – Jenifer Richmond, HR Director, says:
“For us taking on and retaining older workers isn’t about compromising or bowing to political correctness – it makes sound business sense. We really value being able to have a good mix of older and younger employees as these often make up our best performing teams. Mixing with and learning from older staff is often the best way in which our younger employees and apprentices can learn, as well as being a great example of being reliable and having a positive work ethic. It is also the case that our customer base is diverse in age, and it is important that we have a workforce that reflects that. As National Express continues to grow and expand as a company, the contribution made by our older workers very much forms part of the plan.”

Steelite International – Louise Griffin, HR Manager, says:
“As a successful British manufacturing business which exports to over 140 countries across the globe, we owe our success to the quality of our workforce… Over decades, we have found that working hard to recruit and retain the right older workers, as well as investing in apprenticeships and developing school leavers and graduates, gives our workforce the correct balance and subsequently enables us to reach the levels of success that we have.”

March 11, 2015   Leave a comment

Is cutting pensions tax relief the right way to tackle student debt?

27th February 2015

Proposals to cut annual pension contributions limits make some sense but cutting lifetime limit makes it difficult to plan pensions properly 

Still leaves public sector better off than typical private sector pension savers

There are better ways to use pensions to help students with debt

Damage pension confidence as rules keep changing: The proposals today to cut pensions tax relief in order to fund cuts in university tuition fees are likely to cause damage to pension confidence. I am not trying to make a political point here, and I agree that university tuition fees cause problems for young people who leave higher education saddled with huge debts. However raiding pensions to pay for this may not be optimal.

Higher earners and overseas students will benefit from lower tuition fees: Those who will benefit most from lower tuition fees will be students who have higher earnings or who come from overseas and are not traced once they return to their own country.

Let’s look at these issues in more detail.

Cutting annual contribution limit is a valid means of saving public money on pensions tax relief: Those who can afford to put £40,000 a year into a pension are clearly likely to be highest earners and limiting their annual contributions is unlikely to leave most of them in poverty in later life. (There could be a few exceptions to this, for example people who suddenly want to save large sums in later life due to receiving promotion or an inheritance, but these will be a tiny number).

Lifetime limit should be rethought as it is makes it too difficult to plan: Cutting the lifetime limit, however, makes it almost impossible to plan pensions properly, particularly close to pension age when it is most important. Many people will feel this is a retrospective removal of pension relief. The lifetime limit has never made sense to me as a policy tool. Yes, it can raise revenue when people inadvertently exceed the figure, but I cannot understand why policy should penalise good investment performance. Limiting the contributions is rational, but stopping people from being able to plan how much to contribute as they approach the upper limit undermines the aims of pension saving. IF you are in your late 40s or early 50s and have a sum close to the lifetime limit, should you keep contributing to pensions or not? If you add more and the investments do well, you will face penal tax rates. If you don’t contribute more and the markets do badly, you will have less pension later.

£1m lifetime limit will allow twice as much pension income for public sector or private DB schemes: The peculiarities of the calculation methods for the lifetime limit mean that those with final-salary-type pensions (which covers almost all public sector workers but only a minority of those in the private sector) are able to achieve nearly twice as much pension as those with defined contribution pensions.

£1m lifetime limit permits a £50,000 pension for member of typical public sector pension scheme: A £1m lifetime limit for a defined benefit pension scheme would be calculated as equivalent to a £50,000 a year pension from age 65. This is because traditional defined benefit schemes do not have a specific pot of money for each member, they just promised a particular level of pension. The law then requires that amount of pension to be converted to a capital sum to see whether it exceeds the value of the lifetime limit. The required calculation is that the amount of annual pension is multiplied by 20 (the logic might have been that this assumes the average person lives for 20 years in retirement). So £50,000 multiplied by 20 gives the £1m figure.

Typical private sector pension scheme member would need a £2m lifetime limit to get £50,000 pension: However, in the private sector defined contribution schemes, there is an actual pot of money which then needs to be converted into a lifetime pension income. So one needs to look at the costs of buying an annuity. As defined contribution pensions include inflation linking and spouse cover, the cost of buying a £50,000 a year pension equivalent to the lifetime limit available to a member of a defined benefit scheme is the cost of buying an inflation-linked, joint-life annuity from age 65. At current rates, this would actually cost around £2million. So a lifetime limit of £1million is worth twice as much pension to a typical public sector worker than to a typical private sector pension saver.

Auto-enrolment could be reformed to help with student debt: Another option that could help young workers to repay their student debt might be to extend auto-enrolment so that it could cover student debt repayments. Currently if young workers put contributions into a pension, they will receive extra help with their savings from their employer and tax relief in a £1 for £1 match. However, if they put the money into repaying student debts, they lose that employer contribution and pension tax relief. A worker in average salary of £25,000 year, contributing the minimum under auto-enrolment, would be putting £1000 a year into their pension and receiving a further £1000 from their employer and tax relief (a total of 8% of their salary). However, if that £2000 a year were to go into repaying student debt first, the young worker would not have lost the extra £1,000 a year in employer contributions and tax relief. Perhaps this would be a policy worth considering in order to help students repay their debts, which could be a more important form of saving than pensions in early life.


February 27, 2015   1 Comment

Pensioner Benefits

24 February 2015

  • Protecting pensioner benefits is politically astute but also makes some sense for now
  • Tinkering with the current package of benefits is not a solution – they could be taxed or paid from a later age, but the whole system should be rationalised
  • A proper assessment of all later life support is needed – including social care

If the Government just stops paying pensioner benefits such as Winter Fuel Payments or free TV licences, this would be the equivalent of cutting the state pension by over £10 a week. I do not believe that is right or fair. Suggestions that £4bn could be ‘saved’ by sweeping away these freebies are not reasonable. In fact, there are far better and fairer ways to save money if we need to and, until a more thorough assessment is made, it is right to reassure vulnerable older people that their payments are protected for the moment.

If we want to reform pensions, there are far better ways in which this can be done, which can also save money. I have suggested many times that these payments should be taxable and perhaps paid from later ages, but I would prefer to see a proper and comprehensive assessment of how we support older people in this country.

Yes, it is ridiculous to pay a tax-free Winter Fuel Payment to extremely wealthy people who may even live in warmer climes all winter, but why not make the payments taxable, rather than taking them away or means-testing them? The whole system needs an overhaul and, during the next Parliament, the Government should set up a proper review of old age support. Just taking away parts of the current system will not solve the underlying problem.

Of course it is not optimal policy to have so many add-on benefits anyway. The paternalistic notion of Government deciding how pensioners should spend money is long past its sell-by date. Government should give people a decent pension and then it is up to them to decide what they need it for.

Governments have used pensioner freebies as political vote-buyers. The Winter Fuel Payment was actually introduced by the last Government as a series of high-profile but temporary extra payments to please pensioners instead of just increasing the state pension by that amount. When they were introduced, they were not designed to be permanent but have become important to many to supplement inadequate state pensions.

Consideration should be given to rolling all the free benefits into the State Pension, making them taxable, but people could spend the money as they wished. Those pensioners who pay tax would then be taxed on the extra income, so saving costs, but the poorest pensioners would receive the full benefit. There would be savings in administration costs too.

The potential for savings to be made by rationalising and simplifying our benefit system for pensioners is enormous. At the moment, there are over twenty – yes twenty! – benefits that pensioners could be entitled to, they all have different rules and different qualification criteria, some will be payable to every pensioner, some only to older ones, some are tax free, some are taxable, some are means-tested and they need to be administered, claimed, assessed and paid.

So let’s not rush to tinker with the existing benefits system – and also take into consideration the need for social care as well as just pensions. We urgently require a proper review of the entire later life support mechanisms and design a better package of measures to support older people with the dignity they deserve.

February 24, 2015   1 Comment

Older workers are essential for economic success

22 February 2015

  • Having more over 50s in work is not a threat to younger people’s wages or employment – it is essential for economic progress
  • Studies suggest more older people in employment improves employment and wages for the young
  • In our ageing population, we should welcome higher employment levels for over 50s – if they shift to part-time that may depress average wages but is not a concern long-term
  • Concerns about rising labour force participation by older workers being a threat to younger people are misguided – it is essential for economic progress
  • Failure to encourage longer working lives will imply a larger tax burden on future generations, especially with the aging demographics and rising life expectancy
  • More older workers leads to higher national income, higher national output and more jobs for younger generations
  • We should welcome the rise in part-time workers in later life, which allows an extension of working life that can boost future individual and national income

Keeping more over 50s in employment does not mean fewer jobs for the young: There is extensive evidence showing that having more over 50s in work, is actually associated with both lower unemployment and higher wages for the young. A summary is in a Eurofound study by Rene Boheim [ ] ‘The effect of early retirement schemes on youth employment’ which concludes that increasing retirement age leads to an increase in the wages and employment of younger workers. So it is in the interests of all of us to enable more older people to stay in work.

More over 50s staying in work is a major boost to our economic prospects:  Concerns that later retirement has caused slow wage growth in the post-2008 recovery, despite sharply falling unemployment and the massive job creation of recent years, are misguided. Such simplistic analysis fails to factor in the impact of an aging population and the trend to flexible or part-time work as an alternative to traditional retirement. In fact, these trends are hugely beneficial to our economy and should be celebrated.

The demographics suggest we need to ensure older people are employed for longer: The statistics are startling. Over the next few years, there will be 3.7million more people aged between 50 and state pension age, but 0.7million fewer people aged 16 to 49. Put another way, estimates suggest there will be 13.5million more job vacancies in the UK, but only 7million school-leavers. This net shortfall of workers cannot be filled by immigration of 200,000 a year. With our aging population, business urgently needs to recognise the demographic inevitability – either more over-50s will work longer, or we face declining economic growth.

The contention that early retirement leads to more employment opportunities for young people depends on two assumptions, both of which are flawed: For example, this argument assumes older and younger workers are easily substituted for each other. In fact, the skills of older people such as life and job-specific experience, are generally different from those of younger people who have not yet experienced working life. Therefore, younger and older workers are not normally good substitutes for each other – indeed their roles are often complementary.

There is not a fixed number of jobs in the economy:  It is not true that each older worker in a job denies employment to a younger person. This is not how economies work. There is not a fixed number of jobs. The more spending power in the economy, the more jobs can be created. If companies and individuals earn more, economic activity and employment can increase. In an individual company there may be a fixed number of positions, but only over the short-term. If business is good, the company can create more jobs – but if demand for the company’s goods or services declines, it will reduce the number of jobs. This also applies to the economy as a whole. So keeping more older people in work, means increasing national output, higher lifetime incomes and more money to spend in our aging population. Conversely, if more older people stop work, they will have lower spending power and ultimately there will be fewer jobs for younger people.

Having older people active and productive benefits people of all ages and ensures that more jobs are created:  Younger people’s wages rise as employment rates of older people increase [see Kalwij, Kepteyn and deVos, 'Retirement of Older workers and employment of the young'] and as the number of workers age 55 and over increases, overall employment and wage levels rise and unemployment falls [see, Munnel and Wu 'Will delayed retirement by baby boomers lead to higher unemployment among younger workers'].

Historical analysis both in the UK and elsewhere supports this conclusion: For example, after World War II, the dramatic increase in labour force participation by women did not mean fewer jobs for men. Instead, it boosted economic growth as there were more two-earner families with higher disposable income, which created more new jobs as spending power in the economy increased.

UK 1970s’ ‘Job Release Scheme’ failed:  In the 1970s, the UK Government tried to use ‘early retirement’ as a means of addressing youth employment. Its ‘Job Release Scheme’ aimed to encourage older people to leave work and ‘release’ jobs for the young, but the policy failed. Rising early retirement was accompanied by higher unemployment for younger people. Economists subsequently concluded that encouraging more older people to retire is not a way to increase employment prospects for young people over time.  It can actually have the opposite effect.

France has historically tried reducing retirement ages as a policy tool to reduce youth unemployment: From 1971 to 1993 the Government encouraged early retirement, but this led to a fall in employment of both older and younger workers. In contrast, from 1993 to 2005 more older people stayed in work and youth employment rates increased.

There are other examples too: In Germany in the early 1970s, employment of older workers fell by 7 percentage points, but employment for younger workers decreased by 2 percentage points. However, in 1992 the German Government introduced new incentives for older workers to stay in work, leading to a fall in youth unemployment.

February 22, 2015   Leave a comment

Care ISAs and incentives for care saving

2 February 2015

  • Government considering savings incentives for social care
  • Possible ways to incentivise care saving schemes:  1. Care ISA   2. Tax free pension withdrawal   3. Care saving in auto-enrolment
  • Could help millions of middle income families not just the well-off

Government must tackle lack of care funding: Are Ministers finally waking up to the need to help people save to pay for social care? I do hope so. It seems they may be considering savings incentives, to help people prepare for potential care bills for themselves or their loved ones. Estimates suggest that around half the population over age 65 will need to spend at least £20,000 on later life care, and one in ten will spend over £100,000.

Insurance unlikely, need to encourage savings: Insurance companies cannot offer an insurance solution to cover care costs, so private savings must form part of the solution. With an aging population and rising longevity, it has long been clear that increasing numbers of older people will need care. Yet there is no money set aside by the state or in private savings to cover care costs. Obviously, using a family home is a possibility, but many would prefer other means.

Care ISAs and tax free pension withdrawal could help kick-start care savings culture: How can we help families start to plan care savings? Tax-free ISAs are a simple and popular form, but most people do not have specific spending plans for their ISAs. A ‘CareISA’ in the Chancellor’s final Budget would not involve upfront tax relief as with pensions. Launching a CareISA specifically earmarked to pay for care would itself help people realise the need to save for care and help kick-start a care saving culture that currently does not exist. In addition, allowing people to spend their pension money on care without paying tax first would also encourage more to keep money for later life as well as signalling the need for care saving plans.

Making a CareISA work – IHT free? A separate annual allowance for a ‘Care ISA’ of perhaps £10,000 a year, maybe with a lifetime maximum of £100,000 contributions would be an excellent measure for the Chancellor’s Budget. Transferring money from other ISAs into a CareISA could also be allowed. The money could only be spent on approved care provision (but it could cover care for a loved one as well as paying for moderate or preventive needs because such early intervention might help save money for the NHS). To increase the attraction of CareISAs they could be exempt from inheritance tax. Just as with pensions, they could then be passed on to future generations as a Care Savings plan. This could finally begin the process of planning in advance for care funding. Within any one couple, there is a 50/50 chance that one will need care, in a family of four, one is likely to need care but no money is set aside. Saving among family members would make sense if they wanted to, rather than each individual.

Tax free pension withdrawal to pay for care: Alongside a new Care ISA, the new pension freedoms could also be used to encourage people to save money for later life care by allowing any money taken out of the fund for care needs to be withdrawn tax-free. Removing the annuity requirement and 55% death tax could encourage pension funds to be kept to cover family care costs. Allowing some pension fund withdrawal to be tax free if it is used to pay for care, would encourage more people to retain some funds in the tax-free pension for longer, just in case it is needed. If they don’t spend it on care, it will pass free of inheritance tax to the next generation.

Auto-enrolment to encourage workplace care saving plans: Ultimately, there is another route to help care funding, especially for those without large savings. We certainly need a range of options to solve a crisis on this scale. With auto-enrolment potentially bringing every worker into pensions for the first time, there is an opportunity to use this to start funding social care too. The Government could eventually adjust auto-enrolment to cover more than pensions, or even build a national care insurance contribution into auto-enrolment too.

Bringing Care Savings into workplace flexible benefits packages: In the meantime, there would be merit in encouraging employers to offer workplace savings plans specifically for care, such as the CareISAs. This could be part of a flexible benefits package, with an employer contribution to help workers of all ages and income levels save up for care costs.

No magic bullet – urgently need range of options so public know they need to save: The cost to society of failing to ensure money is set aside for future social care needs will put intolerable burdens on the NHS, on younger generations and on older people. There is no magic bullet to solve this crisis – we’ve left it so late. The best we can do is start to tell people that the state won’t pay, help them realise just how little the state covers and that they are likely to need their own funding as well. Whether it’s ISAs, pensions or auto-enrolment, the Government must incentivise saving for social care and this can ultimately help millions of middle-income families, not just those who are well off.

February 2, 2015   2 Comments

Great news: FCA will finally force firms to look after their pension customers

26 January 2015

  • At last the regulator has bowed to pressure for second line of defence – essential in the new era of freedom and choice
  • Providers must ask questions and give risk warnings before customers make irreversible pension decisions

Fantastic news for customers:  I am so delighted that the FCA will finally force firms to take more care of their customers, asking vital questions and warning them about the risks of irreversible pension choices.  At last, pension providers will have to do more to give their customers a fair chance of making the right decision, rather than relying on customers themselves to understand all the complexities of pension choices.  Of course, this should have happened long ago, but I welcome it now nevertheless.

More choice means more risks if people don’t understand pensions:  With the new freedoms starting in April 2015, people approaching pension age will have more choices available to them than ever before.  This adds to the risk that they may make poor decisions because most people simply don’t understand pensions.

It is now up to the pensions industry to rise to this new challenge:  Being careful about looking after customers should never have been an optional extra in the pensions landscape – but it has taken a long time to finally force regulatory action.  Is it absolutely vital to a successful future for providers and customers.

Mis-selling uncovered by FCA demands urgent action:  The FCA’s recent Retirement Income Market and Annuities reviews uncovered clear evidence of mis-selling of retirement income products.  Those findings clearly indicated the need for customer protection.  This is a huge market, with more than a thousand people reaching pension age every single day.  It is, therefore, good to see the decision to introduce more protection is being rushed through to start in April, even before consultation in order to prevent this from happening to more and more people.

Pension decisions can be irreversible:  Once a customer has made an irreversible pension decision, they cannot undo the damage later and the risk of consumer detriment is particularly high at retirement.  This could be buying the wrong type of annuity, such as failing to cover a spouse, or failing to obtain a rate that reflects their poor health.  Alternatively, customers may cash in their whole pension in April, without realising the tax implications.

Mis-buying vs. mis-selling:  Too many customers with serious illnesses have been buying annuities that assumed they were in excellent health.  Firms sold them such products without concerns because providers were not required to ask whether their customers were indeed well and just claimed it was the customer’s fault for ‘mis-buying’.  It is more than six years since the Regulator’s initial findings of such failures, but the FCA just relied on ‘disclosure’ with insurance or pension companies having an obligation to ‘clearly inform’ their customers about their options in multi-page ‘wake-up packs’ that many did not understand and included terms they had never encountered before.  ‘Disclosure’ has not worked – as confirmed by FCA investigations.  What is ‘clear information’ to a pension provider or a regulator is simply not understood by most customers.

Plain English: From April, providers will have to ask some basic questions and alert customers to the risks of any action they wish to take, including the tax implications. The Regulator rightly insists these questions and risk warnings will  need to be phrased in plain English, no complex jargon about ‘impaired life’, single life’, ‘joint life’ or ‘enhanced’ products, but clear questions and statements.

Pension Wise guidance isn’t enough:  Even though the Government will introduce the ‘Pension Wise’ guidance service in April, it is simply not safe to assume this will be sufficient.  Some may not take the Guidance, others may not understand it and a second line of defence to protect people is essential.

Restoring trust:  By asking appropriate questions and giving customers proper risk warnings, they should have a fairer chance of doing what is right for their own circumstances. With auto-enrolment proceeding apace, it is so important to ensure trust in pensions can be restored.  It is right that people are going to have the choice to make their pension savings work well for them, but the risks of poor decisions must not be ignored.  Introducing better protections is a sensible step forward for the future.

January 26, 2015   Leave a comment