I read well-intentioned reports, VFM podcasts and endless webcasts on the importance of “getting to 12%”, the PLSA’s target level of minimum funding for workplace pensions. The 2017 AE reforms are supposed to be implemented by the middle of this decade. The projections of many master trusts have increases in contributions baked into their business models.

I was asked by one of the Chair’s of Trustees of a major AE funded master trust as to what I saw the Labour party focussing on post election. He meant of course “with pensions” and I tried to say the right thing and endorse the 12% mantra, but I couldn’t. I just couldn’t.

Not only has the Labour party not mentioned butting up pension contributions, nobody has! We are all very puzzled.

It’s important to read to the end of the paragraph, but I suggest that opt-outs would not significantly increase with contributions. What happened when Marks & Spencer set their personal contribution hurdle high in 2012 was supposed to be a bifurcation of the workforce between those who wanted and didn’t want a workplace pension. This didn’t happen. Despite having a higher contribution than its peer group, M&S had the same opt-out rates. Those on low incomes and receiving a 20% subsidy on their contributions under relief at source are getting an incentive to stay in, but there is no evidence that they are staying in anymore than their peers who pay 20% more  (in real terms) for the same contribution.

It seems that fiscal incentives don’t work, people pay their pension contributions as they pay tax and NI. So – if the Government chose to increase contributions to workplace pensions by increasing the AE minima (age, thresholds and %) then this would be largely swallowed. But increases in these “stealth taxes” as the public sees them, breed a longer term resentment – unless they are seen as giving value for money. The public sees buying extra state pension as value for money and many older people do so rather than increasing the funding of their workplace pension. There is a trust deficit in workplace pensions which may be linked to the workplace pension providing freedom but not much pension.

The Government has worked out that the best way to solve the adequacy problem for pensioners is via the triple lock which this election has become something of a holy cow (witnessed by another PPI report).

And this is what the PPI has to say about adequacy when it comes to the state pension

The correct relative level of the State Pension is implied to be measured against private pensions in payment, a difficult concept as defined benefit pensions decrease in numbers and real value to be replaced by pots with indeterminate pensions.

It strikes me that the new Labour Government is going to have to consider the questions posed by the current inadequacy of AE contributions and pensions against the shortfall between the state pension and what the PLSA call a “minimum” level of income in retirement. Without SERPS/S2P, the public toolbox is now limited to those in public sector pensions, otherwise – there is reliance on auto-enrolment which does not catch everyone and still lets 10% of those it catches opt-out.

Why I was so reluctant to endorse the adoption of the AE reforms and/or the PLSA demand for 12%, is I do not have much confidence in the private sector saving system to deliver proper pensions (in the sense the population in general understands pensions).

Herein lies the big policy question for Labour. It may look to CDC for an answer, it may return to compulsory annuitisation or it may find another way to incentivise the private sector to reinvent DB. There needs to be a default for DC saving that conforms to our idea of what pensions are supposed to do.

I do not think that anyone is particularly keen to throw more money at workplace pensions till we have worked out what they are supposed to do. To which end, agreeing a  Common Purpose for Pensions would be a great first step for  a future Labour Government.