Pete Glancy: Adequacy should be front and centre of the government's pension plans

Industry voices are often conflicted between calls for stability – for pensions to be ‘left alone' to preserve certainty and trust for savers – and calls for a host of reforms to improve retirement outcomes. Both arguments have their merits, but with 12 million Brits undersaving for retirement, there is a clear case for targeted but essential change. At Scottish Widows, we have two key asks of the new government.

Savings adequacy

First, savings adequacy should be front and centre of the government's plans. Nothing else the government can do will make a bigger difference to financial security in retirement than increasing savings to adequate levels. The first step should be implementing the auto-enrolment (AE) extension bill, which will reduce the age to 18 and see contributions calculated from the first pound earned.

This will have impacts on employers, employees, and tax receipts, but it has been in plan for the ‘mid-2020s' since 2017. Government should consult on a timetable soon, aiming to implement the changes during this parliament, giving businesses and schemes time to prepare.

A holistic approach

Second, because the government will have to go further than the 2017 reforms to deliver savings adequacy, it needs to consider financial needs more holistically.

It seems inevitable that AE contributions will have to increase further in future and a form of default saving will have to be extended to the self-employed. But people have a range of financial needs in addition to retirement savings – like accessible savings for a rainy day or a deposit for a first home.

These needs compete and complement each other in lots of different ways. Efforts to increasing AE saving from 8% to 12% would boost retirement provision, but potentially at the expense of something else. Saving for a deposit on a first home might conflict with pension saving, but owning a home outright will reduce income needs in retirement. So, looking at these issues together will inform better policymaking than considering them in isolation.

Pension review

Labour has committed to a review of the pensions and retirement landscape. The terms of reference are not known, although it's expected that encouraging pension assets towards investment opportunities in the UK will be a priority. The chancellor has set out a desire for reform which sees increased investment for growth in the UK, and upside in terms of improved outcomes for members of pension schemes. Structuring opportunities in a way that creates win-wins will be key.

The government may deem it necessary for this to be a narrower and more tactical pensions review in the short term. If that is the case, we strongly believe there is a case to establish in parallel a lifetime savings commission, building on the approach and principles of the previous Pensions Commission, but recognising that pensions are no longer the only significant ingredient in retirement planning, and that saving for retirement has to be considered alongside other important savings goals which can be indirectly but significantly relevant to retirement.

The scope of the commission should include, but not be limited to:

• The role of the State Pension
• The level of private savings adequacy
• Innovation in decumulation
• The role of pension investments in the UK economy
• Pensions tax relief
• Lifetime financial resilience
• The role of housing and housing benefits
• Affordable decision making support
• Interaction with long-term care

Pete Glancy is head of policy at Scottish Widows

This article was published as part of Professional Pensions' PP Pensions Commission – which is bringing together industry opinion and ideas on the future of pensions to send to the new government

Send your thoughts and ideas to the PP Pensions Commission via email to [email protected] by 19 July