Three in four workers (75%) would be more likely to vote for a political party that reforms defined contribution (DC) pensions, according to new research from TPT Retirement Solutions, one of the UK’s leading providers of workplace pension schemes. It reveals that voters want reforms to workplace pensions to be included in the upcoming political party manifestos and that doing so could have a substantial impact at the ballot box. Nearly nine in ten working people with DC pensions (88%) want whichever party wins the general election to do more to help people save for retirement.
Workers aren’t saving enough for retirement
The research shows workers want the next government to reform pensions. Many are concerned about their retirement savings, with almost six in ten (57%) workers worried they are not saving enough for retirement. A further 45% fear people will face pension poverty if the system isn't fixed, while 55% are concerned about retirement costs.
Therefore, working people want the Government to act on this issue as 71% believe politicians are responsible for ensuring access to adequate pensions. As a result, 96% of workers support reforms to increase retirement savings, such as expanding auto-enrolment or increasing minimum contributions. More than four in ten working people (44%) also favour maintaining the triple lock on the state pension to ensure adequate retirement incomes.
Pensions are too complicated
TPT’s study also finds that many people struggle to understand their pensions and subsequently find it difficult to make retirement decisions. One in three workers (30%) believe pensions are too complicated and 96% would support policies to make pensions simpler to understand. So, how can the industry make pensions easier to understand? One popular option (59%) to simplify pensions is to encourage schemes to introduce a default decumulation option to make it easier for people to choose how to use their pension pot when they retire. Similarly, over half (55%) are behind proposals for a pension pot for life system, to make it easier for people to keep track of their pension savings.
It’s too difficult for people to invest more in their pensions
The tax system's complexity can also discourage people from investing more for their retirement. TPT’s research echoes this view, as 91% of workers support tax reforms to make it easier for people to invest more in their pensions. Introducing a tax-efficient form of sidecar savings is one option that could appeal to 36% of workers. More than four in ten workers (44%) also oppose the return of the Lifetime Allowance.
David Lane, Chief Executive of TPT Retirement Solutions, comments: “Our research shows working people want the government to reform the pension system. Currently, most people are not saving enough for retirement and many struggle with retirement decisions. Any political party that tackles these issues could be rewarded at the ballot box. Following our research, we have drawn up our own top ten recommendations to improve the pension system. We believe these policy changes could significantly improve the retirement savings of millions of people.”
TPT’S TEN POINT PLAN TO FIX DC PENSIONS
Help people to save more for retirement
1. Increase the legal minimum for auto-enrolment contributions until it reaches 12% of earnings, with employers and employees contributing 6% each. The minimum contribution should be ratcheted up by half a per cent each year to reach this new minimum to make the change more affordable.
2. Expand auto-enrolment to everyone in full employment at age 16 or older. AE should also apply to anyone working part-time, earning more than £500 per month.
3. DC Contributions should be based on all earnings rather than qualifying earnings. The lower Earnings Limit and Upper Earnings Limit should be scrapped. Employers should support all employees in funding their retirement regardless of how much they earn, especially when income levels fluctuate through careers. Lower earners will struggle to retire without additional savings beyond the state pension.
Simplify pensions to help people make better retirement decisions
4. All DC schemes should be encouraged to introduce a default retirement solution that is designed for their members. This will probably be a decumulation-style drawdown product that can be easily selected without the need for formal financial advice. The features of these drawdown products should meet minimum standards and their implementation should be overseen by the Pensions Regulator.
5. Create some form of pot for life – this will help young people to start saving, taking their pot with them as they move jobs. It will make it easier for people to see how prepared they are for retirement.
6. Ensure the new Value for Money metrics are embedded in the Pensions Dashboard to make it easier for members to compare their pension schemes and consolidate their pots.
7. Encourage innovation around insurance products. New forms of insurance could be developed to offer policyholders a guaranteed income for life without having to pay a large lump sum for an annuity.
8. Address the financial advice / guidance boundary to allow employers and pension providers to give more tailored support to employees making retirement decisions.
Encourage people to invest using their pensions
9. Introduce sidecar savings for DC pensions. Anyone choosing to save more income into their pensions - beyond the level where their employer matches their contribution - should be able to easily withdraw these additional savings. However, the pension savers should only be able to withdraw the amount they invested in the sidecar. Any investment returns from these savings would remain in the scheme. People would feel more confident increasing their pension contributions to save for retirement, knowing they could withdraw the money if needed elsewhere.
10. Don’t bring back the Lifetime Allowance. People shouldn’t be penalised for saving more for their retirement.
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