Published:

With inflation
still outstripping wage
rises, this is not
the easiest time for
a government to get
more workers saving for
their old age. But
the impetus behind the
coalition's new auto-enrolment
pension  system

is right, and pensions
minister Steve Webb
is justified in his
warning that, unless savings habits
change, many people face
a nasty surprise in
later years when their income
falls well below their
expectations.

The new
system is by no
means perfect, and when
it is rolled out
to include all small
businesses it will
create some unwelcome extra
paperwork. But I'm
still inclined to support
it. With fewer than
half of all workers
currently saving for
retirement, it seems
to me that auto-enrolment
is the only way
to create the culture
change necessary to get
us all to finance
our old age.

There are
plenty of question marks
still hanging over the
scheme. For example,
if low-income workers save
just enough pension income to
deprive them of
means-tested pension credits,
they will justifiably
feel resentful. The coalition's
plan to replace pension
tax credits, with a
flat rate universal
pension of around
£140 a week, should
ensure that this doesn't
happen. But it's
not yet a firm
pledge. In any
case, some form of
means-testing is bound
to persist; the reality
is that those who
set money aside for
their own future risk
making themselves less eligible
for state support.


Critics argue
that the new scheme
needs to be more
flexible; Ros Altmann
at Saga thinks that
ISAs and other forms
of saving should be
included. 
She is of
course right to point
out that pension schemes
are not the only
way to save. But
research suggests that
too many people take
the Micawber view: that
something will “turn
up” and that they
won't need a pension
after all. The government
is trying to break this
complacency. One of
the things people expect
to “turn up” is
a handy inheritance.
According to a
survey this summer by
Barings,
17% of adults expect
that inherited property will
help fund their retirement.
But as longevity
increases, such expectations
are unrealistic.

This also
highlights the scale
of the problem any
government faces in
telling voters the
truth about funding residential care
for the elderly. Yesterday
the Telegraph
claimed that George
Osborne blocked a
plan by Andrew Lansley
to means-test the care
allowance provided to the
elderly who stay
in their own homes.
Allegedly, the then
Health Secretary intended the
money saved would be
used to pay for
a Dilnot-style cap
on nursing home bills.
In the Chancellor's
words, this would be “robbing
Peter to pay Paul.”
No wonder the coalition
is still unable to
come up with a
firm commitment to the
cap: the £2billion
or so needed to
pay for it will
only come out of
the pockets of those
who are intended to
benefit from it.
The government might have
been wiser to spell
out the flaws in
the Dilnot proposal at
the outset, rather than
suggest that it
was only a matter
of time before it
would be implemented.

The truth,
surely, is that
the government can no
longer expect to raise
enough money from taxation
to look after us
all in old age.
Elderly homeowners
should not be outraged
at the prospect of
using their own assets
to pay for their
own care. The media
is fond of claiming
that pensioners are being
“forced” to sell
their houses to pay
care home fees, and
politicians seem reluctant
to rebut such claims.
But it's important
to point out that
where a spouse still
lives in the marital
home, its value will
not be taken into
account for means-testing,
least of all will
a sale be forced.
If there is no
surviving spouse or
partner, and the
house stands empty, its
value will be included
in a means-test
– but why not? This
does not necessarily
mean it must be
sold to pay care
bills; an alternative
option, much favoured
in the current housing
market, is to
rent it out.

The danger
for the coalition
in half-promising to
introduce the Dilnot
cap is that it
encourages false expectations.
Surely it would be
better to come clean
and acknowledge that
it will never happen?
George Osborne is to
be commended for his
honesty: enacting the
cap would indeed be
robbing Peter to
pay Paul. Rather than
relying on a
future government to protect
our elderly parents' homes
for our own pension
pots, we have to
start saving for our
future. Auto-enrolment
is a step in the right direction.

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