The Government has launched another pensions review because too few people are saving enough for their retirement. With an ageing population this is set to become a crisis as time goes on.
We know what is required without waiting for the conclusions of the commission revived by Liz Kendall, the Work and Pensions Secretary. The state pension needs to be secure and adequate, but also affordable, while the number of workers saving into a private pension needs to grow.
Neither ambition is easy to achieve. The state pension age is set to rise again next year to 67 and then to 68; but with so many more people living for longer even this is hard to sustain. Another increase is on the cards. When the state pension was introduced in 1908, the qualification age was 70. The cost of maintaining the triple lock is hard to sustain against other competing spending demands.
Private pensions are equally problematic. Around 20 per cent of private sector employees, and 80 per cent of self-employed workers, are not saving into a scheme. Moreover, of those saving in a “defined contribution” arrangement, almost 40 per cent are set to have an inadequate retirement income. Increasing contributions is difficult since many working-age individuals are reluctant to forgo any more income. The middle classes are also saving less as high taxes and other uncertainties undermine faith in pensions. Reforms, including automatic enrolment, have succeeded up to a point but savings are still inadequate for a comfortable retirement.
Once this country had a regime that was the envy of the world. Generous final salary schemes flourished until they were wrecked by Gordon Brown in one of his first acts as chancellor when Labour came to power in 1997.
Furthermore, why are public sector pensions not included in this review? The liabilities are huge and the employees, including MPs and Whitehall officials, accumulate pension pots that are far greater than anything in the private sector. Greater equality is long overdue yet is absent from the review’s terms of reference.
The review is also contradicted by other Government policies. Rachel Reeves has already announced that pension pots will be subject to inheritance tax from 2027, thereby encouraging people to draw down on their savings or give money away.
The autumn Budget will almost certainly include tax rises to offset the failure to reform welfare benefits. How will that encourage people to save?
