Sometimes someone comes out with a simple statement that makes sense of all the noise.
Jo Cumbo launched her pension manifesto in the pages of Pensions Expert this week and I don’t want them to be lost to readers of this blog. They express graciously but with conviction a distillation of four big ideas;
- Push for general Adequacy in pension provision
- Incentivise savings by rewarding productivity
- Democratise retirement savings by encouraging the low-paid
- Strengthening the Regulator through better resourcing
These are things that Government can do, that the private sector cannot. in particular, it is a call on the Treasury to get a grip on a pension taxation system that is at the least in need of a tidy-up and in the longer term – of a thorough clean.
Here is Jo Cumbo’s election manifesto as published on November 6th.
Election policies we need but probably won’t get
With the next general election less than five weeks away, the main political parties are busily drawing up their policy pledges to win over voters.
Brexit will no doubt influence the shape of many of those election promises.
But given the power of the grey vote, we can once again expect pensions to be a key feature of the December poll.
It is here that the parties must resist the temptation to simply push out headline-grabbing policies targeting the over-65s, who are three times more likely to vote than 18 to 24-year-olds.
The UK faces major challenges in the form of an ageing population and a generation that is not saving nearly enough for later life.
These issues are storing up huge problems for not only millions of young people today, but the security of our retirement system.
Bold steps must be taken to bolster draining confidence in the pensions system and to ensure that, over the long term, millions do not retire in poverty.
1. Taper must go
First, we need an immediate and comprehensive fix to a pension crisis that is wreaking havoc with the National Health Service.
The core problem is the ‘tapered’ annual allowance, a measure introduced in 2016 to limit pension tax relief claimed by high earners.
However, this taper is having the perverse effect of deterring senior hospital doctors from taking on extra shifts to clear patient backlogs. Across the country tens of thousands of patients, including those with suspected cancer, are now waiting weeks and even months longer for urgent tests and routine surgery. This scandal has been dragging on for more than a year.
The government has proposed solving this crisis by giving doctors full control over their pension contributions to help mitigate the risk of tax bills, but this is not the right medicine to solve the problem.
The taper needs to be scrapped and a wide-ranging review of pensions tax relief needs to be undertaken, including whether an annual allowance for defined benefit schemes is sensible policy.
2. Looking ahead to 12 per cent
Second, we need commitments to get people saving adequately for retirement.
There is currently no government plan to raise the minimum mandated contributions for workers auto-enrolled into a workplace pension above 8 per cent.
Yet, a raft of analysis has shown that saving 8 per cent of salary will not be nearly enough to deliver a decent lifestyle in retirement.
Millions of savers are now sleepwalking towards disappointment in later life.
As a priority a new government must commit to immediately setting out a path to raise minimum contributions from 8 per cent to 12 per cent, which is the mandated level in countries with world-class pension saving systems, such as Australia.
A date must be also be set in stone to lower the automatic enrolment eligibility age down from 22 to 18 years so young people benefit from getting into the savings habit much earlier.
In addition, a commitment must also be made to scrap the rule that sees millions earning less than £10,000 per year excluded from workplace pensions. This amounts to indirect indiscrimination against women, who make up the bulk of the low-paid workforce.
3. Low-paid still losing out
Third, there must be a pledge to end the scandal of millions of low-paid workers missing out on a government top-up on their pension contributions.
Most of us receive tax relief on what we pay into our pensions, but some ‘net pay’ payroll arrangements do not allow the government contribution to be paid to those earning less than the tax-free threshold, currently £12,500.
Employers have a duty to choose pension schemes that are suitable for their workforce, yet more than 1m workers are saving into schemes where they are denied a government tax top-up to boost their pot. This is an injustice that must be fixed.
4. Stengthening the Regulator
Finally, a pledge must be made to beef up the resources of the Pensions Regulator, currently supervising hundreds of thousands of employers, and pension schemes with tens of millions of members.
The regulator cannot be expected to take on these extra duties, and properly police the sprawling AE market, without adequate resources.
The four ideas listed are hardly election headline-grabbers, such as free TV licences for the over-75s. But they should be considered by any party serious about ensuring the young, as well as old, have a chance of a decent retirement.
Josephine Cumbo is pensions correspondent for the Financial Times
A plug for the FT
This article has been clipped directly from Pensions Expert and I want to give the FT a plug – not that it needs me from me
A couple of years ago, Pensions Expert lost its way but it is now back on form. I suspect this is because of the editorial team, Angus Peters and now Maria Espadinha who’s just joined from FT Adviser.
The FT is looking a lot more joined up as a pension force with Jo, Angus and Maria bringing national, institutional and retail issues together. It’s good to see a strong pension press and The FT is providing it
My FT pension superheroes