• 75% of people in the UK won’t have enough to retire comfortably; we all need to save more
• Strengthen auto-enrolment and set a medium-term plan for minimum contributions to increase to 15%
• Don’t make a wholesale shift to Tax Exempt Exempt (TEE) to boost public finances over the short-term, as there is no evidence to suggest it would strengthen the incentive to save
• Introduce a capped rate within the current system to remove the Lifetime Allowance, fixing the scandalous inequity between Defined Contribution (DC) and Defined Benefit (DB) plans
• De-politicise the Annual Allowance threshold and move away from the ‘taper’
• Introduce greater support for people deciding whether or not to transfer out of DB schemes
• Policy makers need to be realistic about the need to raise State Pension Age, rather than kicking the can down the road

On the grim prospects for future generations of retirees, Jon Hatchett, Partner at Hymans Robertson, said: 

“The number of UK workers who are unlikely to retire with an adequate income increased from two thirds to three quarters post the decision to leave the EU. The reality is that people will now have to contribute up to 22% of pay to secure a comfortable retirement. This is not going to be possible for the majority; people can’t afford to do that. There are a range of measures the Government could introduce to support people, from maintaining increases in the state pension to strengthening the auto-enrolment regime.  

“I am a strong advocate of auto-escalating auto-enrolment. When someone receives a pay rise, part of that, and associated tax relief, should be used to increase pension contributions as a default.  That way people do not notice a drop in take home pay but over time their retirement savings increase very meaningfully. It now takes 50% of pay to fund a decent DB pension. 8% of pay is not going to close the gap. We should be setting a plan get to 15% over the next 10 to 15 years.” 

On the complex area of pension tax relief and the approach taken by Government in this area, Chris Noon, Partner at Hymans Robertson, said:

“We need a framework for pension tax relief that’s sustainable, fair, encourages pension saving and, importantly, is wholly owned by a single Government department. It should not be split, as now, between DWP and the Treasury.

“The complexity in the current pension system is horrendous, predominantly driven by political motives rather than sensible long-term saving policies. We should retain the current system but remove these complexities.

“Removing the Lifetime Allowance and simplifying the Annual Allowance by removing the taper, would address two significant sources of complexity. But, we also need to update the current system to be more supportive of flexible approaches to retirement. Such approaches will become the norm and backward thinking policies like reducing the Money Purchase Annual Allowance make no sense in this environment. 

“Policies need to address the scandalous inequity between money purchase and final salary pension plans.”

Commenting on why wholesale change to the pension taxation system will not strengthen the incentive to save, Chris continued:

“Both focus group sessions and a survey of 2000 people¹ we conducted when the Government last looked at this showed that fundamentally changing the tax system by moving to TEE would not strengthen the incentive to save. This is against a backdrop of trillions of assets invested under the current system that would need to be transitioned. This would be complex, costly and could result in a confusing two tier system for individuals and potentially different treatment of DB and DC pensions. 

“Of all the options on the table for Government, simplifying the current system will represent the smallest change for the greatest policy benefit.” 

On the need for Government to do more to safeguard DB members from poor decisions and scams, Jon Hatchett, Partner continued:

“It’s vital that Government steps in to drive the industry towards helping members understand all the many options available about how they access their DB benefits.  It needs to be done in a way that’s sustainable and cost effective for all involved.

“The number of people cashing in ‘gold plated’ final salary (DB) pensions has soared since freedom and choice was introduced two years ago. Twice as many transferred in the first year alone and momentum is increasing. In the past six months the numbers requesting quotations from administrators to transfer out have increased by 170% when compared to pre-April 2015 levels. The numbers actually making a transfer are up by 185% and the sums at risk from individuals making poor decisions are vast. In total around £100bn or more of DB benefits are at risk of poor outcomes. The Government needs to put in place the necessary support to help keep people stay financially safe.”

Discussing why any future Government needs to be realistic about the need for State Pension Age increases, Steven Baxter, Partner added:

“I hope all the parties recognise the importance of health and longevity to the financial wellbeing of the nation. National life expectancy has been rising, and it is important to the sustainability of the state pension system that all political parties recognise we continue to play catch up with State Pension age (SPa). 

“For those advocating no further increases to SPa then clarity is needed on how they will keep costs to a sustainable level: Will they move away from universality? Require higher national insurance contributions? Or erode the purchasing power of the state pension?

“More generally we may be living longer, but we are also spending longer at the end of life in poorer health with considerable social inequalities in health and longevity outcomes. I hope the manifestos recognise that pension policy needs to reflect the different circumstances of individuals – my nirvana would be to see cohesive health and welfare policy that addressed issues of fairness within and between generations, of which pensions would be just one, important, part.”

¹ Focus group studies were carried out in September 2015 by Populus. These findings were then used as the basis for an online survey of over 2000 people were surveyed by Populus between the 18th – 20th September 2015