If I were pension minister....
Bob Scott shares his tips with the incoming under-secretary of state for work and pensions to help them become an instant success.
The incoming under-secretary of state for work and pensions, Richard Harrington, has a wonderful opportunity to make a name for himself. Whoever you talk to will say that pension provision in the UK is in a state of crisis.
People are not saving enough for retirement and so will either be forced to work until they drop or fall back on the State. Unscrupulous employers are said to be ‘milking and dumping' their pension schemes, as negative interest rates make them unaffordable and pensions taxation is in a bigger muddle than ever.
So, whatever policies the new minister brings can only improve the current position. But where should he start?
In the short term the impact of the Brexit vote, compounded by the recent rate cut and expanded quantitative easing programme, has pushed pension scheme deficits and ongoing costs higher.
At best this is likely to mean even more companies closing their defined benefit schemes for good; at worst it could mean more employers going under with their pension schemes ending up in the Pension Protection Fund.
One initiative that could ease the pressure on struggling employers would be to offer a level playing field by allowing those schemes whose rules did not permit them to move to CPI indexation in 2011 to do so now - subject to safeguards. In particular, scheme trustees would have to agree that such a change was in the interests of scheme members - not just a way for the company to save money.
Opportunity
The 2017 review of auto-enrolment provides an opportunity for the minister to make changes that will help large numbers of people build up meaningful retirement savings.
I would start by abolishing the lower band on earnings eligible for auto-enrolment (to increase overall contributions) at the same time reducing the earnings threshold to extend provision to more women and low earners.
I would then outline plans to build on the initial success of auto-enrolment, aimed at increasing contribution rates in the medium to long term up to around 15% of earnings.
George Osborne's legacy to the pensions world is an unholy mess of pension freedoms with tapered annual allowances, reducing lifetime allowances and unfinished business with the Lifetime ISA. I would seek to restrain the Treasury's influence over pensions policy per se and make a plea to Philip Hammond to make things simpler.
For starters, how about a simple annual allowance for savings to a defined contribution plan (but no lifetime allowance); an overall lifetime allowance for defined benefit pensions (but no annual allowance); and pension freedoms accessible directly from defined benefit schemes without having to go through the expensive process of transferring to a DC arrangement.
It will take Richard Harrington a while to get his head round the different issues that affect pension provision today. To help him and future governments plan a coherent and joined-up pensions strategy I would establish a standing independent retirement income commission charged with promoting and improving retirement income provision and making recommendations to government on policy matters such as retirement ages, contribution levels and pensions for employees in the public sector.
Above all, pension savings must not come to be seen as a soft touch for a cash-strapped chancellor. People must be able to save with confidence and an independent commission will help to restore that confidence.
Bob Scott is a partner at LCP
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