Do you remember 1988? I recently had time to pause and reflect on what things were like 30 years ago.
I found my Sony Walkman and some cassettes in a box in my loft, so got to listening to some rather dodgy “old” music (put it this way – the only old album I will confess to enjoying listening to is Dire Straits’ Brothers in Arms). I’m sure any 40-something reading this will remember the long walks to the phone box, having a wall covered in posters, and the £1 note.
In 1988 I had no interest nor involvement in employee benefits or personal finances. All I was trying to do was pass my driving test (now you know how old I am) and study for A levels. So, when it came to having a look at what was happening on the financial stage all that time ago, I was quite surprised at what I found.
1988 was the first year higher rate tax was 40% on earnings over £19,300, abolishing the previous 60% over £41,200, while the Bank of England base rate ended the year at 12.87%. Can you imagine?! I shudder to think what my mortgage would cost if this were the case now…
In the age of “yuppies”, people had started to take health more seriously, so image was everything. Employers took their first steps towards better workplace environments by (voluntarily!) banning smoking in offices, using smoking “rooms” instead. In the EB world, a pension scheme was the main benefit offered by large employers, while the most complex and “new” benefit was private medical insurance, but only for select executives.
All this reflection can only lead to one question: are we better off now?
I would argue: yes and no. Yes, we have comprehensive employee benefit packages, modernised workplaces and data connectivity that thirty years ago was reserved for sci-fi TV. And yes, we have more tax reliefs and greater flexibility than ever before. Plus, the single biggest change in recent times – pension freedoms – give us the ability to make our own decisions on what we need and when we need it.
However, with these advances and freedoms come new challenges in the workplace. For example, HM Treasury has forecasted taxes raised from pension freedoms will top £5.1 billion by April 2019 – but even more worrying are the statistics surrounding this incredible tax windfall.
According to figures, 72% of pension pots have been accessed by the under 65s, while 53% have been completely withdrawn. Now, while I don’t have any statistical analysis to back up my thoughts, I suspect many of those closing small pots and making a full withdrawal do not realise a) they are entering drawdown, and b), the future limitations this can bring.
The Personal Finance Society (PFS) has warned less than 10% of pension pots are being used for the purchase of an annuity. Most of these drawdowns are being transacted prematurely (before state pension age) and without any financial education or financial advice. The society is therefore – and understandably – worried most people will run out of money.
So, yes, thirty years ago we had some financial safety nets – employees of large companies had final salary pensions, default retirement ages and higher state pensions in relation to earnings.
Now, instead, we have freedom to work as long as we choose and draw our pensions in the way we see fit (currently from age 55). However, with these freedoms comes an ever-increasing urgency to educate the nation by delivering advice that could make a difference to incomes for years to come.
Personally, I still think 2018 is better than 1988 – it just comes with a new set of challenges that, as employers, we need to face up to sooner rather than later.