Spend, spend, spend or save?
WHEN YOU go to a financial adviser you expect to be told to put every spare penny into a pension. But maybe not if you visit Peter Duffy, a director of IFS, the NUJ's new financial advisers.
"I had a client who came to me to ask whether he should buy a pension or just spend the money on booze and fags. I had to advise him to spend it on booze and fags," he told the LFB meeting on 9 April.
The government is deliberately allowing the state pension to lose value, leaving more and more people to rely on a top-up coming from the minimum income guarantee - the supposedly non-stigmatising name now given to income support. Despite a new pension credit, which will give people with small savings an extra top-up from 2003, people who have saved some money may end up wishing they had just spent it.
Freelances who earn less than £20,000 a year could well find themselves in this trap, financial journalist Nic Cicutti - a member of the NUJ sub-committee that recommended IFS - told the meeting. Duffy agrees. "I would not sell a pension to anyone over 30 who could save only £50 a month." His advice to a freelance with £20 a month to save would be to plan to rely on the state in retirement and spend the £20 on a critical illness insurance "product" his firm is offering, or another form of income protection. Every adult has a one in six chance of getting a serious illness before they are 65, Duffy warns.
Even if you earn enough income for it to be worth saving for retirement, a pension may not be the best solution. "People say everyone needs a pension. They don't. They need an income when they retire," Duffy says.
According to Nic Cicutti, the government's new stakeholder pensions are only really useful for people earning more than £20,000 a year - and mostly for those under 35. Stakeholder pensions are essentially private pensions, regulated by government to avoid the worst characteristics of private pensions - high charges, penalties for making additional payments or skipping payments, punitive transfer costs. But stakeholders are hard work compared to occupational pensions, where employers contribute.
If you are in your 40s and 50s, perhaps even as young as your late 30s, you may well be better off investing in ISAs and other tax-free savings rather than a pension. With a pension you are forced to buy an annuity when you retire: a £100,000 lump sum from the pension might convert into an annuity providing £6000 a year for a man retiring at 65, Peter Duffy estimates. It will be much less for women, who live on average longer, and for people who retire earlier.
With ISAs and other tax-free savings, you decide how to use the money. The main message from both speakers was to get good financial advice - and to campaign for a better state pension. The deal arranged by the union with IFS (see box) is intended to give members access to what it hopes will be sound advice.
One final word of caution at the meeting came from LFB member Charles Cowan. Having worked for the Mirror, Express and Telegraph, he has seen one pension stolen by Maxwell, another threatened by Desmond and the third dented by the troubles at Equitable Life. "Don't put everything in one basket," he reminded the meeting.
Given the dangers, even those with the apparent security of an occupational pension, might be better off putting it all on a horse.