UK - Simplification Report author Alan Pickering says that to boost savings, the state pension should be doubled to 40% of average wages and to achieve that, the pension age should be raised from 65 to 68.
In his new paper entitled ‘How the government can get us saving again’, Pickering said: “By 2008, the basic and state second pensions should be amalgamated and the facility to contract-out should be terminated. By 2025, the basic state pension should be around 40% of national average earnings but to get that 40%, you have to be 68 not 65 as at present.”
The free-market Adam Smith Institute, which is publishing the paper, explained: “If we assume that 40% of average earnings is sufficient income for the fully-retired not to be a draw upon the state, the point at which that higher level of pension becomes affordable (ie. fiscally neutral/not adding to current public spending levels) is in the age range 68-70 years. ”
It says that making the payment at today’s qualifying 65th year would add £40bn (or 10%) to public spending. Roughly, for each year later that the pension becomes payable, £10bn is saved.
Pickering also proposes incentives for employers to re-train older workers rather than “throwing them on to the scrap heap” and incentives for employers to set up and support private pension plans they believe right for their staff.
He calls for an end to government micro-management of the pensions regime, with simpler tax rules, an industry-led compensation scheme, lighter regulation, and equal encouragement of different savings methods.
“At the moment as the UK state pension is inadequate, the private sector, employers and commercial providers are having to deliver privatised welfare and because they are delivering privatised welfare ie benefits that the the government can provide far more cost effectively, governments micromanage the pension system in particular and savings in general.
“Our argument is that if the basic state pension is big enough to provide people with bread and better in retirement, if they then want jam and holidays they will save additionally through their employees pension scheme or through the market place.
“And given that the state is providing a guarantee against poverty and old age, the private sector doesn’t need to be subject to the heavy regulation or micro management, which it is being currently subject to by politicians. The private sector is being asked to do a job which the state and and the tax payer can do far more cost effectively.”
On the role of regulators he said: “Neither politicians nor electorate should expect regulators to provide absolute security. Absolute security is absolutely unaffordable, we can try and create a regulatory environment where nothing could ever go wrong but that would be burdensome and costly.
“One has to accept that things will go wrong on occasions but if the basic state pension is dramatically uplifted it will obviously be sad if someone does lose out because of a decline in the market place but it won’t be as tragic as if they were relying entirely on the market for their incoming retirement.”
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.