May 2008 – Pensions saving in lifetime accounts

One of the great comforts of being employed was the death in service benefit paid to my wife in the event of my sudden demise. In fact the benefits paid out from death on an international assignment were so attractive I used to wonder whether it was influencing her enthusiasm as she waved me off on the doorstep.

Such insurance arrangements have always been something of a mystery to me so it was enlightening to find myself at a conference in Edinburgh last week discussing issues surrounding insured employment benefits.

The conference, organised by Insurope, a multinational pooling network of life insurers, was discussing the kind of employment benefits covered by such arrangements. These networks have proved a popular method among big companies for simplifying expatriate insurance.

The audience was a mixture of human resources specialists and actuaries. The prospects for actuaries in traditional pension roles have been declining in recent years in line with the closure of so many defined benefit pension funds to new members.

The job was never straightforward but it must have grown even more complicated with ever increasing longevity. As average life expectancies in industrialised nations creep up to – and in some cases over – 80 years, funding 20 years or more of retirement has become increasingly expensive.

Job hopping has been another barrier to pensions planning as people struggle to keep abreast of their accumulated pension cover. I found myself agreeing, therefore, with Ralph Turner, ICI’s director of benefits, when he suggested that we shall need to find new concepts and new language to replace those of “retirement” and “pensions.”

Instead of pensions, he said, people might benefit from lifetime accounts that could be topped up or drawn upon depending on individual circumstances. The idea of a lifetime account was suggested a few years ago by Ros Altmann, an independent pensions expert, who highlighted the need to encourage people to begin building their savings early in life.

She blamed poor levels of savings, particularly among low income groups, on inadequate financial education and a lack of government incentives to save. Individual Savings Accounts, stakeholder pensions and pensions credit, all designed to encourage saving, she noted, were failing to make much impact among those relying on benefits.

The Child Trust Fund, on the other hand, where children born after September 2002 are paid £250 to start a savings account that they cannot access until they are aged 18, she believed could be an effective way of kick-starting a savings habit.

Ms Altmann’s lifetime savings framework made provision for long term saving in a “retirement section” of the account with other sections for short term saving. This, she argued, would allow a more equal distribution of pension tax benefits across all incomes groups than exists at present.

There has to be a better and clearer system to help people save for their different lifetime needs depending on their circumstances. Students, for example, may need to let their accounts go in to deficit to finance learning. But with the right incentives and the scope to plan for longer, variable, careers, it should be possible to establish a savings culture that avoids the uncertainties of the existing system with defined benefits pension schemes in retreat.

The combination of declining pension provisions and longer lifetimes means that all of us must begin to assess our careers differently. It is no longer sensible to put our trust in a single employer, hoping they will take care of our career development and progression. Even if our prospects look reasonable in the short term there is no knowing what might happen should an employer be involved in a merger or takeover, for example.

We need to take more control over our careers just as we need to ensure we are in control of our lives. It’s easy to become swamped by work pressures and domestic problems that can feed off each other. No matter how paternalistic your workplace, there is nothing your boss can do about a fractured relationship.

I’ve seen colleagues struggling in such circumstances, sometimes leading to genuine cases of burn out. In every case the causes have been complex, related and cumulative. At the very least they have derailed or damaged careers, often at the expense of an individual’s health. We can’t expect our line managers to deal with such problems. We need to look out for ourselves.

I couldn’t help noticing that two of the presenters at last week’s conference were doing just that, deliberately pacing up and down during their presentations in order to accumulate “steps” on their pedometers.

The pedometers, or personal fitness monitors, were associated with incentive-backed fitness programmes awarding points based on the number of steps achieved in a single day. One of these “vitality points programmes” run by a company called Fitbug awards points for those who manage to undertake 10,000 steps in a day and more still for a higher target.

The steps are registered through monitors in the pedometers that download their readings on to the Fitbug website. Other points are awarded for buying fruit and vegetables and certain sports goods purchases. Depending on the number of points accrued, participating employees can each claim a cash rebate from their company health insurance plans of up to £150.

I can imagine a bright future for such programmes. That kind of cash return just before Christmas is a real incentive for people to work on their fitness. Besides, it’s helpful to remind yourself how much exercise you are doing every day.

This kind of approach in companies, combined with new thinking on funding lifestyles within and beyond our working lives must begin to feed through in to more enlightened policies within government on work and health.

Companies understand that, given demographic trends, with fewer young people entering the jobs market in the next 10 years, they must be offering first class employee benefits if they are to recruit and retain the best people.

This means that many young people today are viewing such provisions not as benefits but as entitlements. That seems reasonable. We should all be entitled to organise our careers, savings and lifestyles in a way that enables us to enjoy fulfilling, productive lives. That’s not too much to ask, is it?

See also: Retirement ages and pensions