15th May 2015
New pensions minister Ros Altmann has been urged to continue with pension reforms and encourage a ‘grand vision for saving’.
In a paper for the Centre for Policy Studies, pension expert Michael Johnson has set out 11 key areas he believes Altmann (pictured) must tackle in order to carry on the good work of her predecessor Steve Webb.
Altmann is not an MP but has been given a life peerage and will become a Conservative baroness in the House of Lords alongside her pension minister duties.
In the paper, Some suggestions for the new pensions minister, Johnson said his measures are cost neutral and could lead to ‘both independence and prosperity for individuals in their retirement and greater sustained economic growth for the whole nation’.
He proposes the following:
1. A grand vision for saving: this should be established by encouraging a ‘broad-based savings culture’ with the aim of raising the UK’s household savings ratio from 5.9% to the 1980s average of 13%.
2. Saver first: the new savings strategy should put ‘the pursuit of simplification, transparency and intergenerational fairness’ above ‘commercial interests’. Regulation should help engender consumer trust and costs should be controlled.
3. Increase the private pension age: at the moment individuals can access private pensions from age 55 and that will rise to 57 in 2028 but Johnson wants it to rise to 60 in 2024.
4. Fairer costs: Johnson wants Altmann to ‘seek to eliminate the industry’s profitable inefficiencies and rent-seeking behaviours’.
5. Auto-enrolment: the roll-out of auto-enrolment to small and medium-sized businesses over the next two years should be carefully monitored to ensure businesses are not encouraging people to opt out of the scheme.
6. Auto-enrolled ISAs: Johnson wants to expand auto-enrolment to include a new ‘workplace ISA’.
7. Small pots: plans are underway for pension pots to follow workers from job to job, but Johnson wants this to be scrapped ‘in favour of aggregation’ of small pots.
8. Value for money: the paper called for the establishment of ‘a few value for money benchmarks, then identify the key policy levers that would help deliver them when accumulating [savings] and accessing savings’.
9. Collective drawdown: the National Employment Savings Trust (Nest) is used as a default pension scheme but Johnson argued that there should be a similar drawdown scheme for those in retirement that would ‘enable retirees to pool their longevity risk’.
10. Annuity auction: Johnson want a ‘not-for-profit national annuities auction house to automate the process of shopping around, adding to pricing tension and transparency’.
11. Simplicity: overall simplification of the pension framework is needed, said Johnson.
However, Johnson hasn’t stopped at pensions and has additional recommendation for the Treasury, including combining income tax and national insurance into one rate. He also wants the state pension triple lock – which sees the benefit rise at the highest of inflation, wages, or 2.5% – to be replaced by a link to CPI in 2020.
The tax relief on pensions should be overhauled to provide those who save £1 with a 50p top up, up to an allowance of £8,000 as well as combining ISA and pension contributions and capping it at £30,000 a year.