Reform Scotland, the independent non-party think tank, has released a major report containing its recommendation for an entirely new pension system and structure. The report – The Pension Guarantee – can be read here; the Executive Summary can be read here.
Reform Scotland believes that the current pension system - including the state pension and public sector occupational pensions - suffer from “The 3 Us”:
- Uncertain - current workers, especially younger ones, have no idea at what age they’ll be able to collect a state or public sector pension or how much they’ll get; indeed, the politicians who’ll make that decision may not be born yet.
- Unfunded - today’s NI contributions and employee contributions almost entirely pay for today’s pensioners; they are not going to a personal pot for the employee who’s paying them.
- Unsustainable - the state pension already comprises 14% of Scottish public sector expenditure and Scottish public sector pensions take up 8% of the Scottish Government’s budget; and there’s going to be a 25% increase in the number of pensioners in the next 20 years.
Accusing politicians of failing to be clear with the country about the realities of our pension system and what may face today’s workers in their retirement, Reform Scotland has proposed a Universal Contributory Pension (UCP). Its key features are:
- It is mandatory – all workers must contribute a minimum of 8% of their salary
- The pension pot is chosen and owned by the worker, and is fully transferable
- The retirement age will be chosen by the worker (any time after 60)
- There will be a flat rate of income tax relief
- Pensions Credit will continue to provide a minimum guarantee
As part of the UCP, employee National Insurance would be scrapped and income tax will initially be increased by 7p to cover the decrease in revenue. In addition, the personal allowance will be increased to £12,000 and the tax system will be rebalanced in other ways to ensure it does not penalise lower earners.
The UCP would apply to all workers in the public and private sectors. The state pension would be phased out over 45 years, and public sector Defined Benefit schemes would be closed for new members and stop accruing for existing members.
These would be replaced, in a phased way, by the UCP, providing more equality between, and security for, public and private sector workers. Public and private sector workers alike, with their trades unions, could negotiate the terms of the contributions made by their employer.
Commenting, Ben Thomson, Chairman of Reform Scotland, said:
“The key problem with our pension structure is that those faithfully paying National Insurance and those paying into a public sector occupational pension scheme have no ownership over their pension assets. They are not paying into a personal pot for themselves - they are paying for today’s pensioners and are dependent on an increasingly stretched next generation to pay for them.
“This is hugely insecure and unsustainable. It’s time to grasp the nettle on pensions and end the conspiracy of silence that exists in all political parties on this issue.
“The Universal Contributory Pension (UCP) will be a mandatory, fully-funded system which will offer workers security and certainty and provide a sustainable solution for the country’s finances.
“The UCP will take power away from politicians and give it to people. It will ensure that workers have control of their own circumstances in retirement, including the ability to retire anytime after they turn 60. And it will free the next generation of the burden which our pensions system places upon them.”
|
