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Business Review 2006 from
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Pension problems
Henry Tapper
head of offshore financial services, Alexander Forbes
OVER one hundred years ago John Stuart Mill argued that 'the only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others. His own good, either physical or moral, is not sufficient warrant'.
In a recent survey sitting on the States' website, 63% of respondents stated that they would be dependent on social security in retirement.
A substantial proportion of those who were in a private pension were nevertheless relying in a public sector scheme. As there is no social security fund and, as the public sector schemes are only partially funded, we can conclude that the majority of respondents were expecting to be baled out by another generation of workers - their children.
A major challenge for the States over the next 20 years will be to manage the impact on taxation as the current generation of 40- and 50-somethings' demand their rightful pensions. Will the next generation pay up or will they walk away from these promises, arguing that the government had a responsibility to force the previous generation to save for themselves?
According to the States' survey, over 50% of people working in agriculture, fishing, restaurants and hotels in Jersey have no pension; the situation is little better for those in retail and wholesale. By contrast, a much higher proportion of those working in financial services, the legal and accountancy professions and the public sector have private arrangements. The issue is focused on certain sectors of the workforce.
These demographics are similar to those in the UK, only more pronounced. The UK solution to the problem has thus far centred on improving access to good quality pensions through the workplace. Working on the principle that work and pensions are equally boring, the presumption is that most people would sooner save for retirement through salary deductions.
In my former job, as head of sales for Zurich - formerly Eagle Star - I was able to look dispassionately at the economics of establishing pension plans for Jersey workers. We noted that BT pays pensions to over 200,000 people in the UK while there are only 87,000 people resident in Jersey. We concluded that the scope for competition for the pensions of Jersey residents was pretty limited and we decided that we would concentrate our efforts on establishing pension plans for firms with big payrolls and high per capita earnings. In the light of this strategy, Zurich's recent decision to withdraw its individual pension plan and retain its large group product makes obvious sense.
Answer
If we draw together the various strands of this article we may be able to construct the basis for a strategy we could pursue.
1 Government should legislate only to prevent residents harming one another.
2 A cohort of mature workers are about to 'harm' a younger cohort through inadequate saving for retirement.
3 The majority of these workers are in specific sectors of the economy.
4 These sectors are not being targeted by pension providers - indeed the range of products available to individuals diminishing.
5 The entire working population of Jersey could be accommodated within a medium to large occupational pension scheme in the UK.
In this final point we may have the germ of an answer. Rather than assume that it is competition that will improve the quality of pensions on the Island, the answer may be found in a collective approach.
The stakeholders for a pension solution in Jersey may be the organisers of labour, the employers, government and the trade associations. If they work as one to create multi-employer arrangements, they can provide easy access to good pension plans for workers in poorly pensioned sectors.
My experience working for Zurich - and I am sure this goes for Norwich Union, the other personal pension provider in the Island, too - is that a properly promoted collective arrangement will be considerably more efficient and more commercial than a multiplicity of personal arrangements. With care, we should make sure that the benefits of these efficiencies are shared with the Jersey workers who so badly need them.
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