“Ros Altmann has some big shoes to fill but she is one of the most recognisable voices in pensions. It is critical that she engages well with the industry and that she can help push through the many initiatives launched by Steve Webb that still need a lot work and consideration to be delivered successfully.
The outgoing administration under Steve Webb played a key role in the revolution of Britain’s pension system, helping to push through major policy reforms in the state pension, implementing Osborne’s pensions freedom policy, and of course the introduction of auto enrolment.
“However, as we outlined in our pensions manifesto earlier this year, there are a number of pressing issues that need to feature on Ros Altmann’s to-do list as the new Pensions Minister in order to ensure savers are able to adequately fund their retirement. These include:
1). The removal of qualifying earnings.
Currently, auto enrolment minimum contributions only have to be made on qualifying earnings. For the 2015/16 tax year, this is set by the DWP between £5,824 and £42,385 a year. This means that the first £5,824 of an employee’s earnings isn’t included in the auto enrolment calculation. For example, if a worker earns £20,000 their qualifying earnings would be £14,176 whilst for someone on £10,000 a year, 8% of qualifying earnings actually means just 3.4% of their total salary is being contributed. So when they come to retire, they will have saved less than half what they expected.
2). Making sure low earners have a chance to benefit from auto enrolment.
By restricting auto enrolment to those earning at least £10,000, the rules exclude millions of low paid workers, particularly women. The trigger for being included in auto enrolment should instead be linked to the threshold for National Insurance contributions lower earnings limit (currently £5,824).
3). Establishing cross-party consensus on automatic transfers.
We believe transfers should only be allowed to schemes that have been independently verified as meeting strict standards such as the Pensions Regulator’s master trust assurance framework or the National Association of Pension Funds’ Pensions Quality Mark. We also think the government’s proposed £10,000 ‘small pot’ limit is too low to be engaging to scheme members – given the rule of thumb that engagement kicks in when a pot approaches annual salary level; we think the limit should be £25,000.
4). Give consideration to auto escalation.
An 8% contribution is not enough to achieve a comfortable retirement. The Pensions Institute, an independent part of Cass Business School, argues the best way to increase contributions to 12% - 15%, is through auto escalation which sees employees nudged into diverting annual pay increases into their pension plan.
5). Extend flexibility to younger generations.
The nature of pension saving is fundamentally changing. With over 55s being afforded greater flexibility with how they access their pension pot at retirement, perhaps now is the time to consider extending flexibility to young savers to help incentivise saving. In New Zealand for example, the government’s KiwiSaver workplace pension saving programme allows savers to make withdrawals to help fund a deposit for their first home or if they are seriously ill or suffering significant financial hardship. Our research* reveals over half (58%) of 18-35 year olds aren’t currently saving into a workplace pension but 54% would start saving or would save more if they could access some of the money to help fund a deposit for their first home.
6). Stay on schedule.
It is also important that the new administration ensures the current auto enrolment timetable is stuck to. The reforms have been pushed back so many times that minimum employer contributions to workplace pensions won't be fully phased in until October 2018. Previously, this was supposed to happen by October 2017 - and before that by 2016, and before that by the October this year. The more it is pushed back, the longer people will delay saving in to a pensions and the harder it will be for them to adequately fund their retirement.
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