Tax Us To Pay Us Pensions, British Consumers Tell Datamonitor

Somebody once said that there is a majority for every stupid proposition. Capital punishment is of course the classic instance. But now it seems even taxation can command a majority. Over 70% of British consumers with a pension polled by

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Somebody once said that there is a majority for every stupid proposition. Capital punishment is of course the classic instance. But now it seems even taxation can command a majority. Over 70% of British consumers with a pension polled by Datmonitor have pronounced themselves “strongly in favour” of a compulsory pension scheme for everybody.

“There are two main enemies of compulsion,” thunders Datamonitor. “The first is business, with the Confederation of British Industry (CBI) already stating that such a move would cost GBP 29 billion a year, hit smaller companies hardest, cause job losses and erode UK competitiveness. The second enemy is of course, the general public, which is generally perceived not to have enough interest or understanding of pensions to make a compulsory pension contribution from their pay acceptable to them.”

Datmmonitor thinks British attitudes are now changing in favour of compulsion. It cites Digby Jones, director-general of the CBI, saying compulsion could not be discounted, as long as it also applied to employees. And then its own consumer survey finds that, when asked, the public is “not shy of identifying the building blocks of a compulsory scheme”. While one in five of the people polled

refused to “engage” with the issue at all, a compulsory 5% of gross salary contribution rate and regulated withdrawals from a pension fund even before retirement did prove popular ideas.

“Datamonitor’s survey confirms that there is a reservoir of goodwill towards compulsion among those who are currently exposed to pensions,” says Nicholas Stephens, Financial Analyst at Datamonitor and author of the report. “The challenge to the government going forward is to harness advertising and the education process at their disposal to create an understanding of the need for compulsion among those who are currently unaware of what is at stake. This education process, which is the necessary beginning for the government to be able to carry through what has to be done, must be initiated to begin to defuse the pensions timebomb.”

Datamonitor asked those with existing pension arrangements whether they saw the need for pensions to be made compulsory for all. Over 70% of them see the move as a necessity. 71% of those with existing pensions arrangements saw compulsion as a necessity. Which means that 29% of those with a pension view compulsion as either unnecessary, or an extra tax, or unworkable.

When the public was asked what they would want from a compulsory scheme, 28% of the working population stated they would like access to their pension if they needed it. As Datmonitor points out, this is a feature of the Australian and German pension schemes. In Germany, money can be borrowed from a pension scheme in order to finance buying or building a house, an option which would suit the financial requirements of UK consumers. While most compulsory schemes worldwide demand a 10% contribution rate or higher, the 5% salary contribution proves the most popular with UK consumers (27%). This, says Datmonitor, suggests the government would be wise to introduce compulsion at a lower level than the 10% mark while the scheme is being introduced (at the 5% level), possibly increasing this later. The company also thinks it vindicates the compulsory pensions ‘blueprint’ expounded by the self-same Datamonitor in its ‘Plugging the Pensions Gap’ report.

The AB social class is the most in favor of a guaranteed pension fund (25%), despite warnings that it may cut back on performance. In fact, the attractiveness of this idea increases directly with social class, so that the DEs are least in favor of a guarantee. “This suggests a more conservative mentality among those in the AB social classes, with the instinct of keeping what they have, rather than risking money,” as Datamonitor ingenuously points out. “Conversely, the DEs are more keen to risk their contributions – having less to risk, the upside for them outweighs the downside. Thus it may be that the way to attract the ABs is with conservative pension funds and the DEs with more adventurous ones.”

Interestingly, the unpopularity of the trade union negotiating model showed how reluctant UK consumers are o follow a Dutch style compulsion-negotiating model. Only 12% of the population agrees that the level of contributions should be determined according to their industry and negotiated by their trade union. “This has cultural associations with the UK consumer, stemming from distrust of the unions dating back to the 1970s,” touts Datamonitor.

Datmonitor was shocked to find a sizeable minority of the population (20%) unwilling “to engage with the compulsion issue at all.” Datamonitor declares their lack of interest a “serious educational question,” and expresses relief that most of the 20% are too poor to be taxed in the way it proposes anyway.

“Ownership of their own pension will also be an essential factor in winning over those who would see a compulsory pension essentially as another tax,” say Datamonitor. “Payslips should feature separate sections for contributions made, and if possible, a rolling valuation of the entire portfolio. This would ensure that the contribution isn’t just seen as a new supplement to National Insurance, swallowed into government coffers with no visibility as to how much is returned.”

“Pensions compulsion” is part of Datamonitor’s Life and Pensions survey series, focusing on mass-market attitudes to life and pensions issues, products and providers