New pensions minister Ros Altmann must continue with the package of bold reforms that her predecessor began and focus on encouraging a “rebirth of savings culture” in the UK, Michael Johnson has said.
Johnson, a research fellow at the Centre for Policy Studies (CPS) think tank, outlined what he believes the Ros Altmann’s key priorities should be as she takes control of the pensions brief.
The government yesterday confirmed her life peerage was going ahead as planned. She will become a Conservative baroness in the House of Lords and pensions minister under the Tory administration.
A CPS report released on 15 May, Some suggestions for the new pensions minister, urges Altmann to continue the work overseen by Steve Webb and outlines 16 additional measures to foster a greater savings culture.
Johnson said his suggestions were cost-neutral from a Treasury perspective and if implemented sensitively would “lead to both independent and prosperity for individuals in their retirement and greater sustained economic growth for the whole nation”.
Within the list, he called for pot-follows-member to be scrapped in favour of an aggregation scheme and for NEST, and other pension schemes, to establish a collective drawdown facility.
He also calls for a single rate of pensions tax relief and for the state pension triple lock to be scrapped by 2020.
Here are his ideas
1. Establish a grand vision for saving. Suggestion: to encourage a broad-based savings culture, with the aim of raising the nation’s household savings ratio from 5.9% (Q4 2014) to the 1980’s average of 13%, say.
2. Devise a strategy to realise that vision, while adhering to the following guiding principles:
• the pursuit of simplification, transparency and intergenerational fairness should trump commercial interests. In other words, put the saver first;
• regulation rarely engenders trust between consumers and the industry. Robust, fiduciary, trust-based governance is likely to be much more effective;
• costs are controllable; asset performance, by and large, is not;
• bear in mind that few enter the financial services industry with the expressed purpose of enriching others. The consumer suffers accordingly; and
• attracting cross-party political consensus on pensions policies is a virtue.
3. Rapidly increase today’s private pension age of 55 (scheduled to rise to 57 in 2028) to 60 in 2024, i.e. by a year every two years, commencing in 2016.
4. Seek to eliminate the industry’s profitable inefficiencies and ‘rent-seeking behaviours’.
5. Monitor the roll-out of auto-enrolment into workplace pensions, particularly SMEs’ opt-out rates.
6. Include ISAs in the auto-enrolment legislation, branded the Workplace ISA.
7. Rapidly sort out the small pots problem. Scrap pot-follows-member in favour of aggregation.
8. Establish a few “value for money” benchmarks, then identify the key policy levers that would help deliver them when (i) accumulating and (ii) accessing savings.
9. Encourage NEST (and its competitors) to develop a collective drawdown capability to enable retirees to pool their longevity risk.
10. Establish a not-for-profit national annuities auction house to automate the process of shopping around, adding to pricing tension and transparency.
11. Simplify the regulatory framework.
Pensions related but Treasury domain
1. Simplify the tax framework: combine National Insurance Contributions (NICs) and income tax into one earnings tax.
2. Signal that the triple lock indexation of the state pensions (the maximum of earnings, prices and 2.5%) will cease in 2020, to be replaced by CPI.
3. Replace today’s tax relief framework for pensions contributions with a simple 50p per £1 saved, up to an annual allowance of £8,000, paid irrespective of taxpaying status. Cap total combined annual ISA and pensions contributions at £30,000 and scrap the lifetime allowance.
4. Map a course to pure defined contribution for public service Pensions.
5. Combine the 101 disparate Local Government Pension Scheme funds into a single fund with four separate, competing, asset allocators.[/su_note]