What can the Oscars teach us about our pension pots?
PUBLISHED: 16:48 27 February 2018 | UPDATED: 16:48 27 February 2018
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Apart from offering movie stars another opportunity to sashay along a heavily-guarded red carpet in borrowed frocks and display faux surprise when the winners are announced, Sunday’s Oscars will also provide some celebrities with a global platform for caustic political comment.
Where once we tuned in to see what everyone was wearing, ever-alert to the possibility of a sartorial faux pas, nowadays we are subjected to an event that considers itself to be at the vanguard of political agitation. Where all of this seriousness will end is anyone’s guess. Someone should make a movie about it.
Though the awards season has become a bloated, sanctimonious caricature, there are other areas of the entertainment business that have developed for the better over the past quarter century.
Take top-flight football. Once a byword for hooliganism and unsubtle corruption, the game, in the UK at least, has, over the past 25 years, been transformed following an almighty injection of capital and effective marketing.
Away from the entertainment sector, industries too have, thanks to well-targeted expenditure, grown well beyond their originally planned limits. Tourism is one. Since 2010, the sector has been the UK’s fastest-growing in terms of employment and is forecast to be worth around £260 billion a year to the economy by 2025, more than double the estimated value in 2016.
A more recent success story will have an even greater impact on a larger number of people for a much longer period: auto-enrolment.
Introduced and enthusiastically embraced by larger companies in October 2012, by the end of 2017 more than nine million people had automatically enrolled into workplace pension schemes, justifiably heralded as a significant achievement.
The Department of Work and Pensions (DWP) estimates that by 2020, more than 10 million people will be entitled to receive a workplace pension as contributions from employers and employees reach 17 billion a year.
There was concern last year when it was revealed that a person on a salary of £26,500 would have built a pension pot worth ‘just £2,440’ in the five years following the introduction of auto-enrolment. However, closer examination showed that from an employee’s perspective, the five-year return exceeded 200%.
As employees contributed just 1% of their salaries during the 2012-17 period, the total paid into a workplace pension for an individual earning £26,500 a year was £786.
This was supplemented by company contributions of £983, tax relief of £197 and investment growth worth £474. In other words, for £786, our employee had created a pension pot valued at £2,440, a return of 210%. Imagine how much the pot would be worth if contributions were higher?
From April 2018, employees will be making contributions of 3%, rising to 5% within 12 months. At first, this bump from your salary could hurt, but the old northernism which states “you don’t get ‘owt for nowt” is particularly appropriate here.
As I reported last month, a report by the Government Actuary Department showed that the pool of money generated from National Insurance Contributions (NIC) with which state pensions are paid (they’re not invested – it’s a giant Ponzi scheme) will run out by 2032.
To maintain current levels of state pension, we have three choices. NIC could rise by an initial 5%. The Treasury could transfer around £11 billion a year to supplement the cost of pensions, or third, the retirement age could continue to rise.
Considering the cost of option two would hit a staggering £482 billion by 2080, we’re more likely to see the state pension age rise towards 75 and a hike in NIC.
Readers who don’t like the sound of these options will undoubtedly recognise the sense of contributing as much as possible into their workplace pension and, wherever they can, putting additional contributions into a private pension.
In a comparatively short period, auto-enrolment has been a success, but it’s not enough to make up for the fact that in 14 years, unless the Treasury pumps in billions annually, the traditional state pension system will crumble, though perhaps not quite as rapidly as the smug, well-rehearsed ad-libs you’re likely to hear in the Dolby Theatre on Sunday night.
The Week in Numbers
Estimated value of each 24-carat gold ‘Oscar’ statuette awarded to individual category winners.
Area, in square feet, of red carpet laid out in front of the Dolby Theatre, to accommodate a night-long parade of stars, their agents and other hangers-on.
The Oscars ceremony is broadcast to no fewer than 225 countries. The organisers claim a television audience of one billion, but Sky News reckon the true figure is ‘several hundred million’.
Most Oscar nominations received for a single movie. Both Titanic (the one with Leonardo di Caprio) and All About Eve were each nominated in 14 categories.
Number of Oscars won by Walt Disney. More than any other person.
A total of 50 larger-than-life Oscars are manufactured and painted gold to decorate the red carpet and other public areas.
Variety magazine, the industry’s Bible, estimates that Hollywood studios spend around $100 million a year on ‘award lobbying activities’.
Audience capacity at the Dolby Theatre where the awards ceremony is held.
Official price range of a seat, though they don’t go on sale to the public. Unless you’re A-list famous, you can only watch on the box.
Peter Sharkey read economics at the University of Bristol. He worked as an accountant on three continents and has been a company director and investor for more than 30 years, building and selling three different companies.