The pensions landscape is complex and unsustainable in its current form. This report proposes a vision for a simpler, fairer and more sustainable pensions landscape, incorporating the three pillars of State Pension, workplace provision and personal provision into a holistic framework.
PRINCIPLES FOR PENSIONS REFORM
- The pensions system should be designed to ensure a dignified retirement for all and embrace accountability, fairness, simplicity, sustainability and transparency.
- When reviewing the state, workplace and private sources of retirement income, they should be considered as a single coherent framework. Policy should be made systematically, not piecemeal.
- State provision should be long-term financially sustainable, reflecting the costs associated with rising life expectancy and the economic consequences of an ageing population.
- Providers of private and workplace retirement saving products should be consumer-focused; their customers’ interests should not be subordinate to the industry’s.
- Personalisation encourages engagement with saving, and hence awareness about the pension system. Workplace-derived savings should be considered as an extension of private provision – they should be portable and as personal as a bank account.
- Tax relief on pensions is inevitably regressive, with nearly 60% going towards higher and additional rate taxpayers. This unjust structural prejudice against the low paid and women should be rectified.
THE PROPOSED FRAMEWORK
- A larger, but later, Senior Citizen’s Pension, supplemented by Income Support (being replaced by Universal Credit by end-2024) extended beyond State Pension Age
- ‘Auto-protection’ for defined contribution pot decumulation with two distinct components introduced by default with the ability to opt out:
- ‘Auto-drawdown’ of between 4% and 6% of pension pot assets per annum over a finite 15 year period from ages 60 to 75.
- ‘Auto-annuitisation’ of residual pots at the age of 75 to collectively hedge individuals’ exposure to risks of longevity and remove later-life exposure to investment market and inflation risks.
- Pay bonuses, instead of tax relief, on all contributions to pension pots, to help generate a broad-based savings culture rather than one targeted towards higher earners
- An enhanced automatic enrolment framework to broaden participation, with members of workplace pension schemes given the right to choose the scheme into which their contributions are paid and with new Workplace and Self-Employed ISAs.
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