NEWS | Pensions These schemes have been very
successful in generating high and sustained levels of pension saving without compulsion. In the UK it would be possible to pass legislation which said that, unless workers opted out, each time their pay went up their pension contribution rate would go up until it reached a ceiling. Each time someone changed job, their P60 would show the contribution rate they had reached in their last job and the new employer would come straight in at the new rate.
The priority surely has to be a period of stability on the tax relief side and to focus instead on what works
It would clearly add administrative For employers, having large numbers
of workers coming up to pension age with small DC pension pots could be a real issue. Even with a new flat rate state pension of around £8,000 per year, many older workers who missed out on DB pensions will be unable to afford to retire. This could mean growing numbers of demotivated workers who want to retire, combined with employers being unable to force them out on age grounds following the abolition of the ‘Default Retirement Age’. This is not a combination that works for workers or firms. The challenge then is to get people saving more than the legal minimum under automatic enrolment. One option would be compulsory saving, as has worked relatively successfully in Australia.
dofonline.co.uk
But the politics of this are very difficult, not least given the lack of confidence which many members of the public have in the pensions industry. A better option would be to build on the insights of automatic enrolment, which have taught us that if you get the defaults right you can get most people to the right place without having to force them. In the context of going beyond 8%, the right ‘default’ option in my view should be a stepped increase in the rate of pension contributions to coincide with future pay rises. This would be in line with the successful ‘save more tomorrow’ experiments in the US, where employees pre-commit part of future pay rises to go into pensions.
complexity for employers and pension providers to operate a scheme of this sort. But, short of full-blown compulsion, it is difficult to think of another way to tackle the chronic under-saving of millions of workers in the UK today. It is always interesting to speculate about the future of pension tax relief, and the twice-yearly cycle of Autumn Statement and Spring Budget gives us plenty of opportunity to do this. But such uncertainty does little to improve confidence in pension saving. The priority surely has to be a period of stability on the tax relief side and to focus instead on what works – getting the behavioural incentives right in workplace pension saving, so that those who take no active decisions end up saving a decent amount and can afford to retire when they – and their employers – want. Q
Steve Webb is Director of Policy at Royal London
The latest Royal London Policy Paper: ‘Pensions Tax Relief: Time to stop the salami-slicing’ can be found at
www.royallondon.com/policy-papers
DIRECTOR OF FINANCE 19
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52