Matthew Vincent: Pensions miss the starter’s gun

Suddenly, 2012 seems a lot nearer than it did a couple of weeks ago – it must be something to do with entering a double-digit decade. No doubt, this will be concentrating the minds of those dating the cheques at ODA and PADA. Both the Olympic Delivery Authority and the Personal Accounts Delivery Authority report that they are currently on schedule – and under budget – to build, respectively, a new stadium in Stratford and an equally ambitious edifice: a new workplace pension scheme. But the 2012 finishing line is looming.

So, this week, PADA sought to go citius, altius, fortius than the ODA – by unveiling a new logo and brand name that would actually enthuse the paying public.

Back in 2007, the Olympic organising committee hired the agency Wolff Olins, at a cost of £400,000, to design a London 2012 logo that would speak to young people. Prime minister Tony Blair said: “When people see the new brand, we want them to be inspired to make a positive change in their life.” But when anyone over the age of 16 saw the resulting pink graffito, they reacted with criticism and derision. More than 25,000 people signed an online petition calling for it to be scrapped, with many adding that their spray-can wielding children could have done better .

It was, therefore, worrying to hear that the pension organisers were taking a similar approach.

In 2009, PADA hired the agency 23red, at a cost of £363,000 (at least it was less than the going rate), to devise a pension scheme logo and brand name that would speak to younger, lower-paid workers. PADA chief executive Tim Jones said: “We need a brand which will resonate with the scheme’s potential members.” So how have people reacted to the resulting orange ellipsoid bearing the word “Nest”?

Rather better. Maggie Craig of the Association of British Insurers said it would “strike a chord with low-paid employees.” John Lawson of Standard Life believed it would encourage them to “build up a useful nest-egg.” They get the message.

They ought to – given the time and money spent. Up to 200 brand names were tested on 300 people in focus groups, and 2,900 people in later surveys, with Nest emerging as the clear favourite.

But PADA is behind ODA in the race to deliver. While the Olympics have to start with a bang on July 27, 2012, the Nest pension scheme will now not be fully implemented until 2016 – more than four years after the original start date.

This is not the fault of PADA, which was only set up in November 2008 and always said it would take three years to phase in the scheme. It’s PADA’s government paymasters who have decided to “stage” the introduction of the scheme, and reduce the employers’ contribution from 3 per cent to just 1 per cent until 2014.

But as any sprinter knows, the slightest delay can cost you. Tom McPhail, head of pensions research at Hargreaves Lansdown points out: “Enrolment into Nest won’t be fully up and running until 2017 and every year of delay means a lower eventual pension.” He calculates that 25-year- olds aiming to retire at age 65 will see their pensions reduced by around one third if they have to delay saving until age 30. But that is what will now happen. Someone earning £25,000 a year and paying the default contribution rates will see their projected pension drop in real terms from £7,000 a year to £4,900 a year, by starting in 2017 rather than 2012.

Lower contribution requirements will also encourage employers needing to save money to close more generous existing schemes, and “level-down” to Nest. Earlier this week, the Association of Consulting Actuaries revealed that a quarter of employers expect to reduce their scheme benefits, and 15 per cent may close existing schemes in favour of the less well-funded Nest.

It’s time the government started aiming “Swifter, Higher, Stronger” – by swiftly introducing higher contribution levels, to give savers a stronger belief that any resulting pension will be worth more than means-tested benefits.

matthew.vincent@ft.com