The Labour Party, widely tipped to win this week’s UK general election, recognises adequacy of retirement income adequacy is an issue. But the party has not set out a roadmap to increase minimum pension contributions for workers above current 8% of salary.

— Josephine Cumbo (@JosephineCumbo) July 1, 2024

The unions have made it clear what they want

A Coalition of trade unions, including the TUC, and civil society groups call for “decent” pensions for all pic.twitter.com/JlLzBz3WDR

— Josephine Cumbo (@JosephineCumbo) July 1, 2024

What’s the point of a “Pension Deduction”?

“Decent pensions” don’t just happen because you throw a lot of money into a pot. They happen because somewhere along the line – someone organises the capital to provide a collective experience called a pension scheme.

I hope I am not sounding pompous by reminding the unions of the options that exist for contributions into a pension pot to turn into what they are referring to as a pension.

1. the pot can purchase an annuity; this is generally considered poor value but was the only way of accessing your savings till 2014 and remains the conventional way of buying a lifetime income
2. the pot can be bought by a company pension scheme and the company can stand behind a DB promise (a company pension). This option is rarely available and even more rarely exercised
3. the pot can be bought by a pension company and turned into a pension with the backing of capital from a third party (a capital backed pension)
4. the pot can buy a right to a non-guaranteed pension secured by other savers (CDC)

Last month, Terry Pullinger, a co-architect of Royal Mail’s CDC scheme castigated a roomful of pension actuaries (and me and Edi Truell) for not developing new ways of turning pots to pensions.

Terry did not call for a trebling of employer contributions into pensions , he called for contributions to be converted into pensions. The common purpose that he sees for unions, employers, trustees, Government and rank and file members is to make sure that all workers get a lifetime income that gives them dignity in retirement.

People do understand this.

The Labour party is wise not to commit to increasing AE contributions

The Labour party has sensibly not made a manifesto promise to increase contributions under auto-enrolment as called upon by the unions.

To do so, would be politically inept, pension contributions are akin to national insurance, paid out of salary against a band of earnings with money disappearing for up to five decades. They are for most people a payroll tax.

It is necessary that this money provide value and it is not clear that – to many savers – it does. The reappearance of the pot at some stage in the future is welcome, but it is not the same as a pension and the emergence at a later stage of “investment pathways” is not what most people expected as the income for life that enables them to stop work.

If we are serious about pensions, we need more than gimmicks, we need a proper understanding of what we are trying to do. If we are trying to create a wealth management system where individuals choose to manage their retirement cashflows from a capital reservoir, then that needs to be backed by a massive investment in financial education to empower the three quarter of a million of us reaching the end of our working lives each year.

I see no sign of the infrastructure being built to do this. MoneyHelper and Pension Wise in Bedford are as close as we get as a Government support mechanism, it is hopelessly inadequate.

Alternatively, we can abandon the pretence that more than one in five of us want anything more than a retirement income and money for the family if we die soon after drawing our pension. See recent blogs on “cake ism”

This means adopting one of the four means of converting a pot into a pension for the 80% of the population Scottish Widows’ recent survey say want nothing more than a wage for life.

Wait till we understand the point of pensions

The unions should be telling the Labour party they want pensions and not pots. They should be demanding that the workplace pension review that will happen after the election should focus on making the transition from saver to spender easy and profitable.

The unions lost the fight to retain pensions for their members in private employment. The pension promises that were made will be kept but there is precious little current accrual (other than in the public sector).

The Labour party have got behind CDC and they should get behind the use of company and capital backed pensions, they should promote annuities for those who have no better option and should certainly promote annuities for those over 70 who have yet to crystallise their pots.

The Labour party should adopt the recommendation of the IFS (and this blog) and put an end to the IHT exemptions on uncashed pots that promote hoarding rather than spending of savings.

Only once a pension infrastructure and a common purpose has been set out, should the issues around contributions be addressed. Otherwise the public will see pensions as a mystery tax, the point of which they just don’t get