Here is a consultancy with a powerful message to Government , employers and people planning for their retirement.

We have needed a report such as this and now we have one. Thanks to the Hymans team for allowing me to read it yesterday in my hospital bed – clearly it has got me through!

A Tapper like tapping and this is the bold message of the report.

Immediate response

Hymans Robertson have published an excellent report which is targeted at a Government needing its clear and independent thinking. This partnership is a B-Corp. At the back of the report it publishes the values that drove the work.

It is not a pension provider and has helped AgeWage pro bono for many years.

I do not expect this important work will get the respect it deserves as it is considering pensions from the point of view of the DWP and HMT, it is not singing to the tune of the insurers but focussing on societal issues which have become apparent because pensions have failed to address them.

This aims to give Government an opportunity to reset pensions focussing on delivering pensions rather than pots. It is strong on taxation focussing on pension tax incentives based on what comes out rather than what goes in.

It suggests that CDC is the way to deliver pensions (rather than pots) to people in years to come and builds on Hymans last year’s paper on how CDC can be offered through all employers.

It thinks hard about young people, conflicted by a need to become property owners and finds a way for pensions to help not hinder this aim. It rethinks the 2017 auto-enrolment reforms and puts forward a proposal that will achieve adequacy later but more thoroughly.

It provides suggestions to refresh DB pensions , clearly influenced by John Hamilton and others whose thinking is evident. As regards capital deployment, it strongly supports a way to deploy money in DB, DC and CDC.

Having just returned from 10 days in Scotland, I have been aware of the historic and current Scottish Enlightenment. Hymans – to me a Scottish firm – represent the spirit of that enlightenment and I intend to expand the ideas in this document in future blogs.

Here it is

What mattered most

I want to extract from this report , those ideas that have mattered most to me . I had the document a few hours and was able to read it in a hospital bed when recovering from an operation. On this occasion it is what sticks with me when I woke this morning that matters most!

Here is the report’s statement of intent. Aimed at Government and those in the pensions industry who want to get “real” (© Torsten Bell!)

Big picture numbers

What was new in detail

A reason for employers to embrace CDC (no matter how small)

This statement comes amidst some fairly well rehearsed talk of the advantages of CDC. But this suggestion that employers participating in a multi-employer CDC workplace pension would be able to pay 2% rather than 3% initially (in today’s language) will be explosive. That the outcome of CDC’s will be higher collectively than the outcomes of DC at present is taken as read by the paper, but the effort on employers to save by funding through CDC is new and is a reason for employers to be rewarded for taking value for money seriously. Of course this will be controversial, but it makes sense to me as a small employer.

TEE not EET – for pension taxation

The proposal to give tax relief on outcomes but not on contributions will be hugely controversial. It was proposed in 2015/16 when the Treasury looked at this approach as a means of providing those on lower incomes with the bulk of taxation incentivisation.

It didn’t make it past George Osborne and it will take a different approach to pensions by Rachel Reeves and her team (including Torsten Bell) to get this version over the line.

While DWP will read the sessions on state pension, adequacy and CDC, the Treasury will focus most on the cashflow advantages of the staged proposals to reform tax relief

TEE (especially with the flat rate incentivisation) would massively reduce the amount of tax incentivisation  to higher rate tax payers (see left hand column) , taking it further would make the bulk of incentivisation deliver to basic rate tax-payers.

Here is the plan for investment

The proposals to change tax changes are supported by further value to the taxpayer by incentivised money paying back to the economy via the Wealth Fund and other initiatives organised by the Treasury.

For employers who have stuck it out and seen investments in their DB trusts become a source of surplus capital, the paper suggests rewards. The Treasury may get £28.5bn but employers are estimated to get £14.2bn.

For the usually forgotten

There are numerous proposals to help the young, self-employed and those for whom the state pension is the key pension (most lower earners at present).

Young

The young would have a means to use their pension as collateral for deposits on houses. This smart idea would mean their money would remain invested for the future but would allow savers to buy a property. This may be the new way of talking about the “pension mortgage”.

Low earners

Using the work done by employers such as Suez and researchers such as Nest Insight, it is clear that establishing a sidecar saving plan alongside an increased auto-enrolment system.

A sensible suggestion for the State Pension

The report suggests that he state pension be benchmarked against the PLSA cost of living index so that people understand the plan for the state pensions future

Clearly the key decision to make is when to drop “triple lock” and rely on average earnings as the basis for future state pension.