“Overall the latest DWP report is a good and serious summary of the issues, although there is sometimes a tendency to ‘over-claim’ the projected positive impact of changes, and subjectivity in the assumptions underlying the analysis:
• The Government inherited auto-enrolment as a work-in-progress and has seen it through, contending with the inevitable hurdles which were considerable. It has persevered and championed the cause;
• The State Pension reforms announced this year are a genuine and major attempt to improve and simplify the system, and to support the pensions and income objectives of the Government. It is coherent and consistent with the auto-enrolment policy initiatives;
• The Government tackled the issue of a long term state pensions strategy, including unpopular measures such as accelerating the increase in state pension age for the future. They have also been radical by confirming a single tier pension.
Whilst there have been a number of major plusses there is, inevitably, room for improvement:
• The State Pension changes will work through to full impact only over a long time, so means-testing is phased out over decades. This could have been quicker. There will be some auto-enrolment members who have saved merely to lose means-tested benefits for quite some time to come. This tends to be ignored by many;
• The maintenance of the triple-lock for state pension increases is theoretically unjustified (compared to the rest of the population), unsustainable and perplexing;
• The Government has not gone far enough on public sector pension reform. In particular, it has made agreements with some schemes which are formulated as very long term but which are either unsustainable or unfair to the private sector. As a result, no further changes are expected, for example when contracting-out is abolished in 2016.
• The Government has severely reduced the annual and lifetime allowances which impacts on an increasing number of employees, albeit not low earners. Until a commitment to future long term indexation is given it will be impossible to plan pensions savings. Also, defined contribution funds are impacted much more than defined benefit pensions.
“There is a tendency for the DWP report to overlook other factors which will impact future pension incomes. There are many comments of improving pension incomes by additional pensions savings. This is feasible for many millions of employees but it just not possible for a material proportion of the workforce. Household debt is still almost at pre-financial crisis peak levels and real average incomes have fallen in recent years. There is also a long way to go in terms of financial education, DC governance, structures for annuity purchase, informed investment structures etc.
“In terms of what the Government can do within its control, in the main, it has taken policy initiatives in the right direction. Continuity and stability in policy has been notable in recent times. It has helped enormously that Steve Webb had prior knowledge, having shadowed the portfolio prior to 2010, and remained in place. Most people in pensions would commend Steve Webb’s efforts and commitment and respect the knowledge he has accumulated which has had a positive effect on our future pensions landscape.”
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