BLOG: Pensions and long-term care need to be more closely tied
One of the current views I have read has been the idea to make pension contributions compulsory with no opt out from pension auto-enrolment, and to increase the minimum levels individuals have to pay in by another percentage or two. This will not be the answer to Britain’s long term pension conundrum.
The simple fact that a large percentage of a small amount is still small and a small percentage of a large amount may be large, seems to continually escape our pension commentators.
Requiring low paid people to pay a percentage of their salary into a pension fund will, in the short term, only make them even worse off at time when they are already struggling to make ends meet, and it is likely they will continue to struggle financially in the longer term however and wherever their pension fund is invested.
Back in 1981, I wrote a paper entitled “Topical Pension Problems” published in The Journal of the Institute of Actuaries Student Society, forecasting the problems that we are actually seeing today, some three decades later.
I wrote then that what the country needed was a real root and branch review of pensions, not just a review focusing on monetary concerns but one that included long term care provision funded by the Government possibly through some ring fenced taxation of UK pension funds.
“Pensions and long term social care have to sit more closely together. Successive governments are still getting it wrong as these two issues should be balanced much better. The three questions I keep asking are 1) what really defines an adequate pension, 2) how is one’s health viewed as you get older, and 3) what is the true function of a pension fund?”
No problem is without a solution, it’s just a matter of being creative, sometimes brave with the thinking, and finding it. For example, in 1942 the Beveridge Report turned the whole way of looking at the system of social welfare on its head. It was highly popular with the public and the report formed the basis for the post-war reforms known as the Welfare State, which includes the creation of the National Health Service.
It is a similar root and branch approach I want taken to studying what the purpose of pensions is rather than just how much or how cost effectively they can be paid. This country cannot continue to bury its heads in the sand.
Dr Geraldine Kaye is managing director, GAAPS Actuarial