THE Government and the insurance industry are constantly preaching to us all about how we must save more towards our retirement or be left with nothing to eat in old age but our memories. But you can't help wondering whose interests they are really thinking about.
I mean, if you go to the dentist you can be reasonably sure you will come out with your teeth fixed, but rely on the insurance industry or the Government for a pension and it can be the last thing you expect to see.
Week after week our Money Help
Desk column receives letters from responsible citizens who did as they were told and saved for a pension, making huge sacrifices while raising a family.
Millions, like this week's AMP London Life policyholder, are now locked in closed funds earning no annual bonus at all. In its day, London Life was a premier company, until it got into trouble and had to be bailed out.
With hindsight, it was an omen of what was to follow at Equitable Life. Had the insurance industry read the warning signs, bigger disaster might have been avoided, but that is history.
I'm afraid, though, there is worse to come. I have just had passed to me the written reply to Parliamentary questions put down by Baroness Hollis about the Government's new personal pension accounts.
These are the first hard figures from the Department for Work and Pensions outlining Government understanding of how much employees will benefit from its new quasi-compulsory savings regime.
And they make disappointing, not to say criminal reading. The written reply reveals that the DWP is perfectly aware that you could save 4% of your annual salary for 20 years and get back only a 1% boost to your pension. Surely this has to be a scandal?
Bear with me while I run through the numbers, because this is important. Say you earn £10,000 and are on target for a full basic pension, with 30 years of state earnings-linked top-up, and have also saved 4% of your salary for 20 years plus enjoyed a 3% annual pension contribution from your employer. When you reach retirement, all that hard work and sacrifice will boost your retirement income by a paltry 1% compared with if you had not saved at all.
It will save the Government a pile of lucre, though, because your savings will have deprived you of the additional state support you would otherwise have been entitled to.
The picture improves modestly as you climb the wages ladder. Someone earning between £15,000 and £20,000 with the same pension and savings record will be just 2% better off. Even those earning £25,000 will see their pension enhanced by just 3%, after making a 4% salary sacrifice throughout their working life.
Those closer to retirement fare even worse, almost irrespective of salary. Save for 10 years and you will forgo 4% of salary to be 1% better off in old age.
I'm not saying investing in a pension is always a waste of time. If you can save more than the minimum and start when you are young it can make a difference. It is, though, highly complicated to calculate whether you will be better or worse off by saving, not least because the pensioner benefits are based on household income for couples.
Nevertheless, these figures provide crystal-clear proof that the Government knows that a huge chunk of the money going into Personal Accounts will not provide the significantly better pensions it promised.
No, most of those who get signed up for this pension will be sacrificing 4% of their salary simply to cut future Governments' benefits bills.
The good LifeIT IS important, though, not to tar all insurers with the same brush, and while Standard Life has not been without its troubles in recent years, last week's bonus declaration offered further confirmation that the ship is steadying.
There was welcome news for its with-profits policyholders. With stock markets down 10% over the year, many retirement funds have taken a hammering.
Yet the value of a Standard Life 10-year with-profits pension increased by 9% over the year, 15-year policies by 7% and 20-year contracts by 4.6%. Endowments also rose, although more modestly by 4.6% over 20 years and 3.3% over 25 years.
Any positive returns right now are a ray of sunshine.
A sterling predictionBACK in March we advised anyone going on holiday this summer to buy their currency then and lock into a strong pound, and we hope they did after last week's tumbling sterling.
The pound has fallen to its lowest level in two years, dropping around 3% against the dollar and more than 1% against the euro.
Which means that right now the only thing that travel will broaden is your overdraft.
The full article contains 827 words and appears in Scotland On Sunday newspaper.
