Rachel Reeves today announced she was shelving the pension contributions review. Yawn some may say. Pensions are dull.
But reframe this for a moment and it becomes the stuff of a great inter-generational battle… It cuts to the very heart of how we, as the current working generation, value future generations. And, in this case, how our parents valued ours.
This issue speaks to the kind of a world we want our children to inherit. And to our core values.
Looking back at the critical moment in this story – the mid-1990s – society's core values were sadly very clear: "Live for today, damn the future generations!"
Here's why: Boomers for the most part had great pensions. These were called "defined benefit" (DB) – you were guaranteed a salary for life.
The burden of providing for a Boomer retirement fell on the shoulders of their employers (Note: Public sector workers still have these and these are unfunded, so a delight for all taxpayers to look forward to...).
In the mid 90s, a seemingly innocuous change in the financial reporting legislation meant companies needed to declare their pension liabilities. Companies didn't like this as it made their financials look worse. So the "defined contribution" (DC) pension was born.
At a stroke, Gen Xers and the Millennials that followed them, without even really being in the place to think about all this, inherited ALL the risk of providing for their own futures. There was no guaranteed salary for them.
Worse still, the contribution rates (that Rachel Reeves has shelved talking about) for the first decade of this new world order – disproportionately impacting Gen X – had no minimum contributions. Only when auto-enrolment (an incredible success) came in was there a minimum.
But that minimum was really low to start and to this day is a paltry minimum (most people and firms pay the minimum of course).
Bluntly: Employers used to pay around 20% of salary costs to cover DB pensions, that % is now around 9%, according to Government data.
Everybody in government knows that is not enough. Most employers also know that is not enough. But the breakdown of the inter-generational bargain continues.
By shelving even discussing this topic, the mostly Gen X, Millennial and Gen Z retirees of the future have been left out to dry. And worse, with no clear resolution timeline.
I consider myself a lucky one, I know this means my money needs to work even harder. I know it means fees matter, returns matter, "risk" decisions matter, my own ability to save matters.
Do you?