While there’s a temptation to pull out the Brenda from Bristol “not another one” gif as a new Pensions Commission kicks off the latest review of the UK retirement system, this increasingly beleaguered government deserves at least some credit for taking a long-term view on pension reform.
Given it is almost two decades since the Turner Commission delivered its final recommendations to Tony Blair and Gordon Brown – ultimately leading to the creation of automatic enrolment – now seems as sensible a time as any to build on the success of those reforms.
And make no mistake, while auto-enrolment is a long way from perfect, the fact the framework has remained broadly untampered with since it was introduced in 2012 – despite the significant political and economic upheaval we have witnessed over the intervening period – is a major policy success.
That success is in no small part down to the consensus-building approach taken by the previous Labour government and continued under the Conservative-Liberal Democrat coalition. Achieving similar consensus in today’s social media-driven political cesspit may prove more challenging, but it has to be worth a try.
There are a range of specific issues relating to private pension saving that will need to be addressed by the Commission
To have a fighting chance of achieving anything meaningful, the Pensions Commission 2.0 needs to be given flexibility to consider all elements of the UK pension system. Anything short of this would represent a significant missed opportunity.
The terms of reference the Commission are working to looks, on the face of it, broad enough to achieve something significant, covering:
- Outcomes and risks for future cohorts of pensioners on current trajectories through to 2050 and beyond;
- How to improve retirement outcomes, especially for those on the lowest incomes and at the greatest risk of poverty or undersaving;
- The role of private pension provision and wider savings, building on the foundation of the state pension, in delivering financial security in retirement and supporting those approaching retirement;
- The long-term challenges of supporting an ageing population;
- Proposals for change beyond the current Parliament, which build on the measures in the Pension Schemes Bill and ensure Britain in the mid-21st century delivers financial security in retirement through a pensions framework that is strong, fair and sustainable.
The Commission will report in 2027, two years before the next general election. Liz Kendall, at the time work and pensions secretary, said the state pension triple-lock was “out of scope” for the review, while the government has also said it won’t increase employer auto-enrolment contributions before 2029. Which means it will be at least a little hamstrung when suggesting the most appropriate future direction to boost the retirement outcomes of millions of Brits.
There are, of course, a range of specific issues relating to private pension saving that will need to be addressed by the Commission, including whether auto-enrolment should aim to deliver decent retirement living standards or simply the bare minimum for most people, and how to tackle the burgeoning retirement crisis among self-employed workers.
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It is less clear whether a DWP-appointed commission will take account of the pension tax system when making recommendations. Given the central role retirement savings incentives play, both in people’s retirement outcome and as a ‘cost’ to the state, I’d argue they absolutely should be considered.
More than anything, it is uncertainty about the future of pension tax relief and tax-free cash entitlements that creates destabilisation for ordinary savers. This has not been helped by near-constant tinkering with annual and lifetime allowances since 2010, not to mention the decision to bring unspent pensions into IHT from April 2027.
Given the challenges of raising contributions in the short-term, providing certainty over the tax framework is arguably the most powerful lever available to government to give people the confidence to put more money into their retirement pots.
The level of support for AJ Bell’s campaign, with over 20,000 people signing our petition for a ‘Pension Tax Lock’, shows the depth of feeling that exists on this issue. As a bare minimum, the government should commit not to change pension tax relief or tax-free cash until after the Commission has delivered its findings, with a longer-term goal to deliver the lasting stability pensions so badly need.
Tom Selby is director of public policy at AJ Bell
