Pensions crisis: start saving now or work longer

10 January 2003 by
Pensions crisis: start saving now or work longer

People working in hospitality are among the most under-pensioned in the UK, and will be among those hit hardest by the pensions crisis. While a Government review of retirement options will make life simpler for those with pensions, low-paid catering staff will have to work for longer or save more now to avoid poverty in old age.

The demographic time bomb of people living longer combined with poor stock market returns means that the Government, and employers, are finding it harder to meet their pension promises.

Last month the Department for Work and Pensions unveiled a Green Paper - its plan for addressing the pensions crisis affecting up to 10 million UK workers. But leading industry figures say the Government's proposals, due to become law in 2004, do nothing for many workers with no retirement provision beyond state benefits.

Employers feel the Green Paper ignores their calls for greater tax incentives for contributions to employees' pensions.

Tax advantages

British Hospitality Association deputy chief executive Martin Couchman says: "The problem for employers in recent years had been the Government actually removing tax advantages for employers offering pensions. The Green Paper holds no new incentive for employers to contribute to an employee's pension - no spark of initiative that is going to address the pension problem in the hospitality industry."

The Government had hoped stakeholder pensions would go some way towards solving the problem. Introduced in April 2001, stakeholder pension legislation forced every employer with five or more employees to set up pension schemes with guaranteed low charges. But employers were not required to contribute to stakeholder pensions and figures from the Association of British Insurers show that of the one million stakeholder pension schemes set up by employers since their introduction, 90% have no members.

The Government is hoping that increasing flexibility in retirement regulations will make it easier to work longer. Work and pensions minister Andrew Smith said: "The aim of the pensions Green Paper is to help people choose how they plan for retirement, how much they save and how long they keep working.

"We are determined to help more people carry on working until they are 65 and even beyond. At the moment a wealth of talent and experience in the workplace is lost as people stop working too early. The Green Paper proposes to crack down on discrimination and sharpen incentives to help older people remain in work."

The message for hospitality workers without generous company pensions is that they will have to set up their own pensions or work longer.

Pensions specialist Nick Bamford of independent financial adviser Informed Choice says many hospitality workers are likely to be on means-tested state benefits when they retire.

Bamford says: "If your employer is paying into your scheme it is good for you to be in it, but more and more employers are finding they can't afford to make contributions. Means-tested state benefits in retirement may remove the incentive to save, but hospitality staff who do want to save for their retirement and move around a lot should use stakeholder pensions as they are the most cost-effective pension product."

Working later in life will be made easier by anti-age discrimination rules that will abolish fixed retirement dates and allow staff to continue working for a company part-time while collecting a pension from that company, currently not allowed.

British Association of Hospitality Accountants chief executive David Wood believes flexible working regulations for older workers could help the industry. Wood says: "Extending the retirement age will help the hospitality industry address its staffing problems by providing a greater pool of workers."

Weekly payment

People who work to 70 and defer taking their state pension for five years will see a 50% increase in their weekly payment or a lump sum of £20,000 on top of their normal pension, or £30,000 for a couple.

For those not wanting to end up on state benefits in retirement the message is clear - save more or work longer.

Couchman of the BHA reiterates this: "In the future people working in the hospitality sector will have to help themselves more - they will get less from the state and will have to find more from private sources."

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