Michael Johnson, research fellow at the Centre for Policy Studies, joined Trevor Matthews CEO, Colin Williams director of corporate and Martin Palmer head of pensions marketing at Friends Life, for a thought leadership debate about pensions reform yesterday (18 May).
Michael Johnson, who ran David Cameron's Economic Competitiveness Policy Group and who wrote 'Simplification is the key: stimulating and unlocking long-term saving'1, was guest speaker at the Friends Life Global Forum, a regular event hosted by Friends Life which brings together leading industry commentators, senior managers, employers and employee benefit consultants to discuss current challenges and new ideas from the industry. At the Friends Life Global Forum, Michael Johnson presented his ideas about current pensions reforms and the requirements needed to meet the demands of an increasingly ageing population.
On the issue of auto-enrolment, Michael Johnson argued that this alone will not be enough and that one of the key issues is how to get more people to save more from an earlier age, specifically 'Generation Y', the under-35 group. Michael Johnson proposed that for this group, flexibility was key and that "not having a degree of controlled early access to pension funds is a mistake". He suggested allowing early access limited to 25% of pension pot value, the rationale being that 25% is tax free at retirement anyway. This would therefore incentivise savings amongst Generation Y, and allow funds drawn out to be used perhaps with limits on fund usage.
Michael Johnson also commented that he believed improvements were needed to NEST, which is flawed, not least because the charges are high in relation to prevailing market returns, for being mis-communicated as a pension rather than a savings product and for failing to include key groups such as the self-employed.
Michael Johnson also suggested pensions should be more closely aligned with ISAs, which have a better 'brand' reputation amongst consumers. This could include re-assessing the points at which tax relief on long term savings is received, as the significantly higher contributions made currently into ISAs demonstrates that many consumers (notably Generation Y) are not lured by upfront tax relief.
Martin Palmer of Friends Life commented:
"With the launch of corporate platforms employers will be able to offer greater choice of savings vehicles to employees. This variety and accessibility combined with a programme of financial education, will in our opinion help in the battle to promote the importance of long term saving as an essential consideration rather than as a box to be ticked."
Contributing a provider's perspective to the discussion, Martin Palmer also explained that the role of the employer would be key in driving forward pension reform, and that it is essential the costs to business are considered alongside those of the tax benefits to individuals, with support for employers to save for and encourage employees.
Martin Palmer also commented that it will be essential to get the launch of both auto-enrolment and NEST right and that Friends Life would provide as much support as possible to help employers and advisers adjust to the new environment.
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