The Government’s assault on S2P means corporate advisers will have to tell millions how they have been duped
says Teresa Hunter
A Government campaign promising millions of workers a pension of their own for the first time should be reported for investigation to the Advertising Standards Authority.
Employees already get an attractive pension on top of their basic state deal. This is now being slashed, but the scale of this shocking news gets no mention at all in the glitzy ads.
So the truth about the Government pensions reform is that millions of employees will gain nothing, with many actually losing a very valuable additional pension, typically worth up to £4,000 annually.
As a result most will end up considerably poorer in retirement, despite continuing to pay very high levels of NI, and saving for many years via auto-enrolment. Indeed they may also have to suffer years of low or no pay rises, as their employers claw back their new auto-enrolment bills.
And employers are paying these bills, not to benefit their own staff. Oh no, but to line the pockets of others, not least those working for the state.
Many of us were happy to accept that a level fixed pension was essential to making auto-enrolment work. Now it seems, auto-enrolment is vital to reforming the state pension, a central plank of which is to abolish what has always been an extremely valuable element of most private sector workers retirement income -S2P.
One has to ask why angry union reps, who so eloquently fought any threat to public sector pensions, have lost their tongues when it comes to an affront to the standard of living of 20 million private sector workers in retirement?
Could their silence have been bought by those same state employees who, surprise, surprise, will receive a substantial windfall from these proposals.
Someone earning £35,000 in industry will lose more than £72,800 over a 20-year retirement, while a sibling working in the public sector will receive a £38,480 retirement windfall when the new system kicks in according to figures from Hymans Robertson.
Under the existing system, someone working in the private sector would get a combined basic pension and S2P of around £214 weekly. In future they will get just £144. This leaves them £70 worse off, £3,640 over the year.
Lower paid workers are particularly badly hit, as they received generous treatment under the old system. Someone on £10,000 a year could have looked forward to a weekly pension of £175.40. He will be £31.40 worse off, or £1,632 a year.
To claw this money back he will have to contribute an additional 16 per cent of his earnings throughout his career; twice what auto-enrolment envisages. So he and his employer will save hard, only for him to be worse off in retirement.
Similarly, our slightly higher earner on £35,000, will need to increase his contributions by 10 per cent to make good this gap. As this again outpaces auto-enrolment, this individual will save more only to be worse off in retirement than now.
And he will continue to pay around £3,300 in NI annually, even though it will do him little benefit for much of his career.
By contrast, public sector workers will continue to get two pensions for the price of one. They get the new rolled -up state pension, just like private sector employees. But they will also continue to accrue an equivalent S2P through their occupational pension.
They typically get £107 weekly in pension and this will rise to £144. But they will see no commensurate reduction in their occupational pensions.
You have to hand it to the union negotiators. They ran rings round the useful Whitehall idiots, but then they too get a public sector pension, so perhaps we shouldn’t be too surprised.
Corporate advisers have to highlight to both employers and their staff the reality of the traumatic shock their basic entitlement has just suffered. I wonder how they now feel at having to do the Governments dirty work.
Has anyone got a number for the ASA….. or should that be the fraud squad?
Teresa Hunter is a freelance journalist