#Finance » Chancellor must change tack or risk the wrath of pensioners Comments Feed [p?c1=2&c2=6035736&cv=2.0&cj=1] Finance RSS Feed dcsimg Wednesday 23 January 2013 | Blog Feed | All feeds Website of the Telegraph Media Group with breaking news, sport, business, latest UK and world news. Content from the Daily Telegraph and Sunday Telegraph newspapers and video from Telegraph TV. ___________________ Submit * Home * News * World * Sport * Finance * Comment * Blogs * Culture * Travel * Life * Fashion * Tech * Dating * Offers * Jobs * Companies * Comment * Personal Finance * Economics * Markets * Festival of Business * Your Business * Business Club * Money Deals Blogs Home » Finance » Business » Ian Cowie Ian Cowie Ian Cowie was named Consumer Affairs Journalist of the Year in the London Press Club Awards 2012. He has been head of personal finance at Telegraph Media Group since 2008, having been personal finance editor since 1989. He joined the paper in 1986. He is @iancowie on Twitter. IFRAME: http://platform.twitter.com/widgets/follow_button.html?show_screen_name =false&show_count=true&screen_name=iancowie [cowieblog.jpg] Chancellor must change tack or risk the wrath of pensioners By Ian Cowie Your Money Last updated: November 2nd, 2012 Comment on this Comment on this article Next monthâs Autumn Statement could cause the Government to lose the next general election or incur a massive compensation bill unless the Chancellor changes his current policy on pensions. Regular readers may have guessed that I am referring to the mis-selling scandal that is bound to result from automatically enrolling low-income people into the new National Employment Savings Trust (Nest). As things stand, forcing them to start saving in Nest or other pensions will merely deprive them of means-tested benefits to which they would otherwise be entitled in the future. So compulsory saving will be a waste of money for them. Worse, it will be bad advice for those who are in debt by the fourth week of every month or, for any other reason, cannot afford to lock cash away until they reach retirement age. Millions of graduates might be better off paying down student debts, for example, or saving to buy their first home. The legal principle that compensation must be paid when financial advice, let alone compulsion, causes any individual to be worse off is well-established. A series of scandals including personal pensions sold to people who might have been better off in company schemes, with-profits endowments and payment protection insurance (PPI) have all demonstrated that it is no defence to claim good intentions. So, for example, arguing that auto-enrolment will reduce the burden on taxpayers by cutting benefits wonât reduce individualsâ entitlement to compensation when they realise what is going on. But most of those affected are young or low-paid or both â in other words, the groups of people who are least likely to be members of company schemes already or take much interest in pensions. As a result, it will take a while for this scandal to reach the front page or television screen. Even so, massive numbers are involved. About 300,000 people had a total of £4m taken out of their pay packets when they were auto-enrolled into pensions last month, when the new scheme was launched, and millions more will be affected as smaller companies and their employees are brought within its scope in the months and years ahead. And nearly half of all pensioners are currently so poor that they are eligible for means-tested benefits. Lest this sound alarmist, there is no need to take my word for it. Pensions expert Dr. Ros Altmann, the director-general of Saga, summed up the problem succinctly this week: âIt is dangerous to auto-enrol people into pensions unless we can be sure they will not lose all their savings in a state pension means test.â In a bid to reduce this risk, as recently as the last Budget the Chancellor said he intended to increase the basic state pension to the equivalent of £140 a week in 2010 money, with effect from 2015. That would have defused the auto-enrolment scandal by massively reducing the number of pensioners entitled to means-tested benefits. Unfortunately, to keep this pledge affordable, the higher payments were to be restricted to people reaching state pension age after 2015. That proved a fatal flaw in the plan. Excluding more than 10âmillion existing pensioners from the higher payouts would be political suicide. While millions who had paid tax and National Insurance contributions (NICs) all their working lives would be excluded forever from the improved basic state pension, many others who never paid any tax or NICs but none the less have residency rights in the UK and retired after the change might benefit. No wonder the Prime Ministerâs office vetoed the plan as soon as its political consequences became clear. No one needs to tell Number 10 that pensioners tend to exercise their right to vote rather more rigorously than younger constituents. So the original proposals would have resulted in an extreme example of a reform where those who miss out make most noise while many winners would remain blithely unaware of what was going on. Neither is an attractive proposition for legislative change just months before the next general election is due. To be fair to Steve Webb, the pensions minister, it isnât his fault that the benefits system is so complex that any attempt at change is like trying to nail down a warped floor board. As soon as you think itâs fixed at one end â boing! â up it pops at the other end. What to do? Fortunately, the demographics offer a solution, which is supported by pensions experts including Dr. Altmann, Steve Bee of Paradigm Pensions and Tom McPhail of Hargreaves Lansdown. Restricting the increased basic state pension to everyone aged over 75 would mean only 4.4âmillion people would benefit, while restricting it to those aged over 80 would limit initial payouts to only 2.6âmillion. Either option would offer everyone, including existing younger pensioners, the hope of benefiting one day while cutting the cost to a half or quarter of the level of introducing better pensions for all immediately. Either option would also avoid the massive costs of compensating people wrongly compelled to start saving and have the additional benefit of helping to win the next general election. Or at least avoid losing it. Whatâs not to like? Tags: auto enrolment, Basic state pension, Chancellor, general election, George Osborne, government, Hargreaves Lansdown, means-tested benefits, National Employment Savings Trust, Nest, Paradigm Pensions, pensioners, pensions, retirement, Saga, savings, State pension, Steve Webb Recent Posts * Millions of investors miss the stock marketâs best start for two decades January 23rd, 2013 6:45 Comment on this * Why millions of the poorest people in Britain pay £200m a year unnecessary tax January 22nd, 2013 6:45 Comment on this * Taxman gets tough with 57pc increase in writs against late payers January 21st, 2013 12:08 Comment on this * House prices can build tax-free income and gains in new pensions and Isas January 18th, 2013 12:15 Comment on this * Expert tips on how to make a tax-free income from your home January 18th, 2013 6:45 Comment on this Please enable JavaScript to view the comments powered by Disqus. comments powered by Disqus Finance bloggers * Ambrose Evans-Pritchard * Ian Cowie * Mats Persson * Jeremy Warner * Philip Aldrick * Richard Blackden * Andrew Lilico Our Finance Blogs * Economics * Business * Your Business * Energy * Retail and consumer * Your Money * Broadcasting and media * Politics and society Finance Tags Bank of England banks Chancellor china david cameron debt EU euro eurozone financial crisis financial services authority George Osborne Germany Gordon Brown government greece Hargreaves Lansdown HMRC HM Revenue & Customs homebuyers house prices income tax inflation Interest rates investors mortgage mortgages pension pensioners pensions property quantitative easing recession retirement savers savings shares Smith & Williamson spain stock market tax treasury Financial services * Telegraph Investment Service * Fund Supermarket * International money transfer * Wealth management ON THE FINANCE BLOG * PMQs: the earth moves for the Conservatives * David Cameron's Europe speech is good leadership and good politics * The Speech: a powerful case for EU reform – but can Cameron stick to the timetable? * Millions of investors miss the stock marketâs best start for two decades * Why millions of the poorest people in Britain pay £200m a year unnecessary tax Archives [Select Month__] Finance Topics * Energy * Retail * Financial Crisis * Recession * Interest rates * Budget * Gordon Brown * George Osborne Back to top * HOME * News * World News * Obituaries * Travel * Health * Jobs * Sport * Football * Cricket * Fantasy Football * Culture * Motoring * Dating * Finance * Personal Finance * Economics * Markets * Fashion * Property * Crossword * Comment * Blogs * My Telegraph * Letters * Technology * Gardening * Telegraph Journalists * Contact Us * Privacy and Cookies * Advertising * Fantasy Football * Tickets * Announcements * Reader Prints * * Follow Us * Apps * Epaper * Expat * Promotions * Subscriber * Syndication © Copyright of Telegraph Media Group Limited 2013 Terms and Conditions Today's News Archive Style Book Weather Forecast