It is therefore important that adequate retirement provision is encouraged to curtail the necessity to work longer and allow older generations to contribute.
One encouragement comes through making adequate retirement provision aspirational. Although the current tax treatment of pensions is one of tax deferral not tax relief, there has been continued criticism of the level of pension tax relief that is given to the affluent.
If the affluent are seen to champion provision, there is a chance that pensions could once again be something for all to which to aspire. Alas, two recent surveys indicate that this is less likely to happen.
Consultants LCP reports that executives are now ditching membership of a pension scheme in favour of cash supplements; actuarial investment advice firm Punter Southall reports 40% of firms surveyed believed that senior management would be less engaged in schemes over the longer term. Disengagement at senior levels will hardly engender a favourable attitude to workplace pensions.
But does this matter? Briefly, yes. As well as diminishing the number of potential pension champions, consider the impetus that the affluent sector provides to innovation. Drawing an analogy with the car market, electronic stability control will be standard on all new models from 2012 – a safety innovation derived from prestige car manufacturers that will now benefit all.
SIPPs, once seen as the preserve of the high net worth, but now applicable for middle income earners, pioneered the use of income drawdown and facilitated other innovations such as wraps and platforms.
SIPPs breed innovation and the affluent are able to diversify investments to explore new opportunities that may develop into wider market application.
There are calls for pensions to be made more relevant to today’s market. Taking a lead from car manufacturers, which are in a race to develop electric cars, would allowing SIPPs to invest in renewable energy – such as wind turbines and solar panels, boosted by feed-in tariffs – be a way forward? This could not only encourage pension saving but support green initiatives too.
Robert Graves is head of pensions technical services at Rowanmoor Pensions
