Let’s put workplace pension saving in perspective.

A sense of perspective needs to be applied to this headline in Professional Pensions.

The Government backing the private members bill that extends auto-enrolment commits them to no more than they promised in 2017 and does not even commit them to delivering the extensions by the middle of this decade.

Realistically, it is a sop being thrown to the funders of workplace pensions to allow Government to focus on its agenda which is to make DC pensions rather fairer and more predictable through better delivery (rather than bigger contributions).

The overseas perspective

We might like to consider the UK on a pathway to contributions of  12% of all earnings, as Australia promises itself, but we have two things Australia does not have

  1. A substantial part of the working population that are or will be in receipt of a DB pension
  2. A state pension that is not means tested , providing close to £20,000 pa to a dual pensioner household.

The move to a reliance on DC workplace pensions will be long and gradual. The extension of auto-enrolment is one step along that road but it is an uncertain step. Those funding workplace pensions should be wary of celebrating anything yet. Who knows what a Government in 2025 will decide is fair to those required to pay more into pensions from their wage packet.

The time it has taken to get this far, both in the UK and Australia, suggests that those who see the 2017 extensions as a done deal, are indulging in wishful thinking.

This decision of the DWP’s isn’t really landmark – that’s wishful thinking on the part of a workplace pension funder!

“The landmark day for pensions” remains our state pension age

Meanwhile , the matter that probably concerns the public most, when it gets its  state pension remains a matter of speculation.

There is a genuine debate about whether to further push back the state pension age at this stage. On one side of the debate are those, citing recent work on mortality, who point to the rate of the nation’s longevity increasing as slowing. For them (most notably the policy team at LCP) the state pension age should not be increased and might even be decreased.

There is a different view, from those who look at fertility as well as mortality. That view suggests that there are insufficient people joining the workforce to support paying out the state pension on the current timetable. This view supports proposals to push the state pension back.

The decision the Government takes on the state pension age will be “landmark” for generations to come.

More workers, working  harder

A third view, sees immigration as a kind of “joker” and considers the replacement ration of fresh  workers to pensioners as manageable through Government policy. Other more tactical considerations are how we manage the large numbers of people over 50 neither in work or on the Government’s list of beneficiaries of universal credit. The blame for this state of affairs is currently being pointed (laughably IMO) at the affluent saver – frightened to earn sufficient to risk breaching the MPAA and consequently putting his/her feet up till the Chancellor concedes a further tax-break.

I suspect that when we have numbers for those taking early retirement (especially ill-health early retirement) from DB schemes, they will account for a substantial part of the 700,000 over 50s not contributing national insurance to replenish the fund that backs the state pension. Add to them, those using their DC savings to bridge to the state pension and you can see why the normal minimum  pension  age (MNPA) of 55 is becoming a problem for Government. It may be moving to 57 in 2028 but many people will still  have a “protected” MNPA at 55. Is the idea of 55 or 57 being normal as a retirement age, seems irresponsible to me.

How we manage “normality” in terms of retirement could lead to another defining moment.

Not to save earlier but to work longer

There is no doubt an argument within Government that the long-term strategy for retirement is to make people more independent of state benefits through retirement saving. The recent study of retirement income suggests that by 2060 only a third of DC savers will be falling short of adequate pensions (compared with three quarters depending on the state pension and other wealth).

But is increasing the speed that the light blue line trends to zero really going to sort out our retirement problems?

The vexed question of the strain on benefits and health budgets from older people’s morbidity remains.

Permitting and even encouraging the idea that there is a minimum “normal retirement” age below the state pension age goes against the DWP’s own modelling that assumes all pensions are taken at state pension age.

I am told that the one influential think-tank is  about to propose that  a future Labour Government should review the  current freedom to spend pension savings in our fifties,  consider it  anti-social and take it away.

In my view, the MNPA is too low and our expectations of stopping work before state pension age have been set too high for the past 40 years.

It will be hard to change occupational scheme rules to stop 55  being used as a proxy by some  for packing it in.   That goes  those in defined benefit and some DC schemes.  But there are other options for making the taking of income early (look at some of the proposals put forward by the Institute of Fiscal Studies on taxing pensions in payment).

The landmark moment for workplace pensions could shift from when we start saving our pot to when we start spending it.

The UK perspective

The things that seem to matter most to us now, the timing of the extension of auto-enrolment, the launch of the dashboard and ephemera such as single statements and mid-life MOTs seem to be small beer in Westminster.

The things that seem to matter to the  DWP and Treasury- and to voting workers – relate to the adequacy of the pension system as a whole, its fairness and its predictability.

Right now, there is a lot of noise about what should be done.  There’s a lot of extravagant claims for projects such as auto-enrolment and the pensions dashboard. But ownership and engagement of workplace savings hardly touches the sides of the big societal problems ahead

What has been missing is a strategy for pensions that could be defined as a common purpose.

Laura Trott’s  Ministerial Priorities could translate into a common purpose for pensions that we could get behind. I hope that she can promote her agenda further. It would give us a better perspective on what really matters.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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