This talk was given 6 December 2007
The text here may not be identical to the spoken text


ABI Saver Summit - Introduction

Pensions and cash

Welcome to the ABI Saver Summit. This is the sixth in the series and I think I’ve chaired five of them. If this is the summit then I’m the sherpa Tenzing Norgay. Apologies to those of you too young to remember the Conquest of Everest in 1953.

Just a quick update. Last year I told you the pensions crisis was over. Evidence was the mentions of the phrase in the UK’s national newspapers. Virtually no mentions in 1999, 2000, and 2001. Then in 2002 665, then 792, 916, and 1104 in 2005. But then last year it fell to 553. And then this year it is down again to just 223 mentions.

We are meeting just a few hours after the latest Pensions Bill is published which is a happy coincidence – or not you never know until you’ve checked the political donations register.

I say the latest Bill. There have been six Pensions Acts of various sorts in the last ten years. This one will be the seventh.

Let’s hope they get it right this time.

I don’t want at this stage to comment on the details of the 90 page Bill and the 53 page gender impact assessment and the eight supporting docs published just 18 hours ago. But the Government has already announced one change that will mean less money is going into pensions from April 2008.

The basic rate of tax is being cut. Hooray. But that will damage pension provision. It will mean that every basic rate taxpayer paying into a personal or stakeholder pension outside employment will have to put in more just to stand still.

At the moment if you put in £100 out of your net income the Chancellor coughs up £28.21. Making a total in your pension pot of £128.21. But from April when the basic rate is cut for the same £100 contribution the Chancellor will cough up just £25. In order to have the same amount going into your pension you need to raise your contributions by 2.5641%. Now there’s a message to send your sales staff out with. Running faster to stand still. What does that remind me of?

'Now, HERE, you see, it takes all the running YOU can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!' (Red Queen Alice Through the Looking Glass Lewis Carroll 1871).

Now that won’t affect people paying into a scheme through their pay. The same £100 will go into the scheme, but while the Chancellor was putting in £22 of that now he will be putting in just £20. So the individual will be putting an extra £5 into their scheme.

When the change was announced in the Budget in March Chris Curry at the Pensions Policy Institute did a calculation for me which indicated that if the basic rate had been 20% this year then the tax relief going into pension would have been cut by and no-one had raised their contributions by 2.5641% then that would mean £289 million less going into the pensions of basic rate taxpayers in 2006/07. This year that figure would be more and by the time of the change in 2008/09 it will probably be at least £350 million less going into the pensions of basic rate taxpayers. I stress that is my rough estimate not a PPI calculation.

Not higher rate taxpayers of course. They will continue to have the same pension subsidy – paid for partly by taxpayers who have no pension at all but who will get the warm glow knowing that they are helping the well off stay better off in retirement. Already higher rate taxpayers are estimated to take 55% of the tax subsidy paid to pensions. After April they will have an even bigger share.

So just when the Government wants to encourage people on earnings below £40,000 a year to save in a pension it is cutting the tax subsidy they get on their contributions.

It makes you quite reminiscent for those days of joined up government doesn’t it?

But savings is about more than pensions. And so is the Saver Summit. I was struck by this when I saw the queues of people queuing up outside Northern Rock in September. Reports said they were taking out £100,000, half a million pounds. And I wondered how much cash do we have saved up? I found the answer in an obscure and rather difficult table published each month by the Bank of England. [slide] Here is a simplified version of it.

UK Cash Holdings as at October 2007

Banks - Instant access


Banks - Notice account


Banks - No interest



Building society - Notice account


Building society - Instant access



Cash ISA


Notes and coins




So between us we have £927 billion - nearly £1 trillion in cash. And of that £888 bn is in bank and building society accounts – leaving aside the investments which ABI members sell to us each year.

Now the Bank of England announced last week that we had unsecured debts of just £222 billion. Exactly a quarter of the amount of cash savings. So as a nation we have our debts well covered. Though many individuals of course do not.

But with the banks unable to borrow from each other, it is our money –that £927 billion – they’re after And already we’re seeing top deals on cash savings – especially short fixed term rates.

So this is the era not of the investor but of the cash saver.

And when we talk about treating customers fairly. And the retail distribution review – the re-timetabled, and over budget, million pound retail distribution review – financial advisers are going to have to think very carefully about advising people to invest when they can get such good short term gains on savings.

Could any of you put your hand on your heart and say you will get 6.75% – after charges on this stock market investment I have lined up for you?

go back to Talks front page

go back to the Writing Archive front page

go back to the Paul Lewis front page

e-mail Paul Lewis

All material on these pages is © Paul Lewis 2008