Time to take a step back and ask ourselves “what are we trying to do with pensions policy?”
On Monday I was discussing why £1.8bn is going unclaimed because we can’t give the money away, on Tuesday I am reading about the pensions consumer journey , aimed at getting pension savers to navigate the wreckage of a broken private pension system.
The Government’s initiative to improve member outcomes from workplace pension system makes no reference to the Government’s initiative to improve take up of Pension Credit. How can stakeholders say “the consumer is at the heart of what we do” and not care about avoidable pensioner poverty?
If there is an overarching duty to the consumer, it is hard to see much evidence of it. What is needed is an ovrarching idea of what we are promising people as a minimum and for those who have more – value for their money – by default!
What is missing?
What we lack in Great Britain in 2022 is an overarching mission statement for pensions that the public can get behind. This doesn’t have to be a melodramatic hand-waving gesture, it can be something as simple as Australia’s “Retirement Income Covenant” that says what it is clearly and calmly and explains what it will give people by way of simple promises.
We should start with state benefits. What is the minimum state support available to someone from state pension age? It is an amount set just below the full state pension where any shortfall between the state pension due and this amount is met by pension credit – which is also the door to more – where help is needed on housing, health, fuel and TV costs. Our retirement income covenant is set at just under £200 pw – cash in hand – with further financial support available on request. For those who have no entitlement to these benefits – we offer an over 80s pension of £85 pw baased on minimum citizenship requirements.
The second element of our retirement income covenant is that we as a nation support people saving for their retirement into recognised schemes by paying everyone a minimum amount into their pension as a saving incentive. We will have to wait until 2025 for this to happen for low-earners in net pay schemes but at least we know it will happen. Everyone will get the incentive either as a savings top-up (Ras) or through the net pay system (including those who don’t pay income tax).
The third element of our retirement income covenant is that Government boosts the savings of those using recognised schemes through tax-privilidged investments which make our money grow faster and make it possible for some schemes to offer defined benefits with tax-payer’s help.
The fourth and final element of our retirement imconem covenant has yet to arrive but looks like coming. If I read the runes right, the DWP are looking at making sure we all get a value for money wage for life from our retirement savings through a simple system of converting “pot to pension” – just as is happening in Australia. Whether this be through drawdown , annuity or some form of CDC will remain the consumer’s choice, but the consumer journey to a pension which is considered good value is the final promise of a retirement income covenant.
Of course there are people who do not consider a retirement income important to them, The truly wealthy have unlimited cashflows that don’t need to be foralised as a pension and there may be people who want to live self-suffeciently without the support of the state or of personal savings, but they are marginal. Most people- almost everyone – looks forward to the security of a wage in retirement that lasts as long as they do.
Whether that wage is from the state pension , from pension credits, from private savings or from defined benefit occupational schemes matters not, what matters is that the pension is suffecient to the needs of those who receive it and provides some inflation protection in bad times (like now) and a means to catch up (such as the triple lock or discretionary increases in private pension income).
The aim of the Retirement Income Covenant is to ensure that no one falls into pension poverty and that the majority of us – who are more affluent get value for the money we sacrifice for our retirement during our working lifetimes.
There is a great deal of activity at the moment on “engaging” people with their pensions. I of course support this , but there needs to be a big idea that we can get behind, and that is currently missing. The big idea has to be about retirement income because that is what a pension is. The convenant from the Government on retirement income is nearly in place, but it lacks a big picture statement that the public can hang their pension hats on.
The duty of the pensions indsutry towards the UK consumer is to provide a retirement income covenant that is affordable today, sustainable over time and explainable to a public who are currently a little confused.