3rd October 2014
Pension expert Michael Johnson has called on the government to introduce a ‘savings commissioner’ to tackle the problem of inadequate pension saving in the UK.
Johnson, writing for the think-tank the Centre for Policy Studies, has said successive governments have failed to face up to declining pension contributions and placed retirement in the ‘too difficult box’ as it is ‘always easier to perpetrate intra-generational injustice by kicking the can down the road’.
In order to placed pensions above politics, Johnson said the Department for Work and Pensions (DWP) should co-sponsor an independent savings commissioner with the Treasury that would be ‘tasked with developing policy, free of the electoral cycle, to catalyse a broad-based, retirement savings culture’.
‘Co-sponsorship is important; successive governments have exhibited ‘pushmi-pullyu’ behaviour,’ he said, referencing the fictional animal in Doctor Dolittle that has two heads at opposing ends of its body.
‘The DWP wants people to save, whereas the Treasury favours consumption. The commissioner’s guiding principle should be to act in the long-term national interest, ideally with nothing deemed out of scope. To be clear, the commissioner would not be in a position to implement policy; the role would be to make recommendations to government, which, given the commissioner’s independence, would be hard to ignore.’
Ultimately, the savings commissioner’s credibility over time would be equal to that of the Office of Budget Responsibility.
Johnson emphasised that pensions should be de-emphasised when talking about retirement savings as the idea of pensions does not resonate with Generation Y.
Over the past six years pension contributions are down 25% to £7.7 billion in 2012/13 while subscriptions to stocks and shares ISAs are up 59% over the same period to £16.5 billion, despite the fact pensions receive upfront tax relief but ISAs do not.
‘Clearly, lack of ready access to pension saving is a huge deterred, too high a price to pay for up-front tax relief,’ said Johnson. ‘In addition, private pensions are complex and expensive, and the industry is widely distrusted, which deters engaging with it, and partly explains our lack of a savings culture.
‘Pension products’ inflexibility is at odds with how the under-35s are living their lives: they want to be in control. The stark truth is that the pension product is from a bygone age, before college debt, rising labour market volatility leading to fragmented careers and unaffordable housing. Indeed, Generation Y is so disengaged from private pensions that the industry’s next cohort of customers will be very thin. It is reasonable to conclude that, in the long term, the private pension business is finished.’