Recent news of the revival of a Pensions Commission was music to my ears.
No doubt like many readers, I remember the original Pension Commission, established in 2002, with the brief to look at pensions reform.
This original commission published a white paper entitled 'Security in retirement: towards a new pensions system' which at the time was seen as a ‘landmark’ and included a series of proposals for pension reform.
The Department for Work and Pensions issued a similar report in 2006, citing that pension reform was ‘curious’, because, ‘while having a decent income in retirement is important for everyone, the system itself seems often to inspire only apathy and confusion’.
They also said at the time that the issue is ‘highly complex’ and as a result, people can, ‘fail to behave in their own economic interests’.
Twenty years on and we have an arguably even more complex and indecipherable pension system which is still causing confusion and disincentivising responsible pension saving. For many savers, pensions remain opaque, with increased uncertainty and trust due to significant changes in the tax environment. This hardly creates a worthwhile foundation for confident and engaged retirement planning.
The Government cited that there were five tests for their reforms: promoting personal responsibility, being fair, simple, affordable and sustainable.
It seems like these would be very sensible tests for the new Pensions Commission to abide by. The pensions system is in need of brave reforms, which establish a platform for people to support and enjoy themselves in their retirement and security in older age. The over reliance on the State Pension and Triple Lock needs to reduce – not least for the sake of the state finances.
We cannot wait another 20 years for these reforms. The Government must act now. The DWP estimated that 45% of UK adults are not saving anything into their pension. That’s an astonishing and alarming statistic, that must incite radical and strategic reform.
The Commission’s final report is slated for 2027. The longer that we wait for a sustainable and beneficial pensions system, the current issues will compound. The Government must also be conscious not to continue to disincentivise people from responsible pension saving, and recent proposals and changes have done little to inspire confidence.
The introduction of pensions in scope for inheritance tax, and most recently the news that IHT will apply to workers’ retirement savings even if they die before reaching pension age, is a great example of a government proposal that has not been considered fully alongside experts within the industry. A more joined up approach to pension legislative changes is needed, as well as an acknowledgement not to use pensions as a political football.
An obvious area that I suspect the new Pensions Commission will target is the expansion of Automatic Enrolment (AE). This has been proposed for some time, and the Bill has received Royal Assent. The challenge faced here is imposing additional outlays on employers, who have only recently seen increases in national insurance.
The balance to increase pension saving, while not debilitating businesses needs careful consideration and application. I suspect that there will not be a ‘one size-fits-all’ approach that can be taken here, with targeted support and incentives for small and medium sized enterprises to avoid economic catastrophe. A key objective of the commission must be to address the imbalance between dependency on personally-funded pensions and the state scheme.
Another output I am hoping for from the Commission is better financial education. The current system won’t be unwound or scrapped and restarted, so there is a need to educate people on the system as it is now. An obvious place for this to start is effective education in the national curriculum.
I have everything crossed that the new Pensions Commission can drive through meaningful change and that any outputs are not simply an attempt to repackage without reform.
The Commission has a huge opportunity to reshape the pension landscape and recommend positive changes for savers – I do hope that it can make a genuine impact and that the Government engage openly and constructively with the industry.
Martin Tilley is chief operations officer at WBR Group