Forum Brief: Pensions
A simplification of the "unbelievably complicated" pensions system is set to be recommended by the government-appointed independent Pensions Commission.
Government Response: Department for Work and Pensions
A spokesperson for the DWP said: "We believe the key thing is to ensure that information on pensions options is as straightforward as possible and that all the information is relevant.
"In February we published the Informed Choice document which enables us to work with employers and pensions providers to ensure people make better choices when it comes to pension options."
Forum Response: Institute of Directors
Derek Brownlee, pensions analyst at the Institute of Directors, said: "Many people have unrealistic expectations about when they will be able to retire, and how large their pension will be, so impartial pensions advice and education is needed.
"It's very important that the government looks at what is stopping people saving adequately for retirement and realises that people will not be able to save more into pensions when they are being hammered by ever increasing taxes."
Forum Response: Age Concern
Gordon Lishman, Age Concern's director-general, said: "With pensioner poverty at crisis levels and half of all pensioners relying on means-tested benefits, it is right to examine different strategies for improving pensioner's incomes.
"The current basic state pension fails to cover daily living costs and the complexity of the system prevents many from planning effectively for retirement.
"Any moves to relax employers' mandatory retirement ages would help to improve flexibility in later life.
"However the government must not raise the state pension age as part of pension reform. If the government pushed forward with this option, manual workers would be most likely to suffer.
"Manual workers generally have lower life expectancies than their white-collar counterparts and are also most likely to depend on the state pension.Raising the state pension age would lead to a 'two-tier Britain', where the least well off would be forced to work longer in back-breaking jobs while richer pensioners would retire early anyway.
"The priority should be to address the fact that one third of people aged between 50 to state pension age are not working, many due to age discrimination, so are unable to make adequate provision for retirement.
"The government must also increase the state pension to at least £105 a week to ensure all pensioners have enough to cover basic living costs and the security to build-up their own retirement income."
Forum Response: National Consumer Council
Ed Mayo, chief executive at the National Consumer Council said: "NCC research shows that half of adults say they don’t trust the pensions industry. And half of those questioned think government has a responsibility to offer better financial incentives to save – a voucher scheme rather than regressive tax breaks.
"Young people are aware of and unsettled by the pensions crisis, but they are suspicious of solutions that mean that they must make big sacrifices today with no guarantees that this will bring them any real benefit tomorrow. They are likely to face a tough middle age, working hard to catch up saving.
"Many young adults are struggling to pay for their day-to-day living expenses, while trying to keep up repayments on loans and credit cards. For those on the property ladder, the responsibility of a mortgage is often perceived as a better investment towards their future. Those with children have other financial priorities on their hands. Pensions are seen as a burden too many.
"NCC believes that giving everyone the right to a basic ‘citizen’ pension from the state – guaranteeing an adequate, secure and simple base for their retirement finances – would boost confidence in saving towards additional retirement income. The rest is up to the pensions industry – to stick to its promises and treat customers fairly."
Forum Response: Consumers Association
"The UK pensions system is ridiculously complexand fragmented, and presents a huge legacyproblem both in terms of educating andengaging consumers. There are currently 12different types of personal pension available,various annuities, ten different types ofemployers’ schemes and the various elementsof state pensions. Add to this the thousands of unnecessary, poor value products sold by the insurance and investment industry and collapse in consumer confidence in the industry, it is no wonder consumers are put off taking an active interest in pension planning.
"The labyrinthine complexity of pension-relatedrules, regulations and legislation that apply tostate, employers and individual pensions addsto administration and distribution costs and alsoincreases the need for expensive advice to resolvecomplex issues.
"The entire pension system needs radical simplification and reform.There should be along-term commitment on the part of the government not only to simplify the legislation/regulations but to simplify the ‘product’ choicesavailable to consumers.
"We propose a simple two-tierstructure withan improved flat rate basic state pension as a foundation; and a pre-funded additional pension with contributions invested via new collective-basedpension schemes such as industry-wide schemes, a centrally administered National Pension Scheme, or retail schemes run by approved stakeholder pension firms. These schemes are designed to reduce risk, to complement employers’schemes and replace retail pensions provided by the insurance industry.
"The aim of the combination of these two pensions would be to provide a ‘decent andfair’ and sustainable pension. The government must set explicit targets for what itconsiders (after consulting with stakeholders) a fair and decent pension to be. This isimportant for judging and monitoringthe overall success of the government’s pensions policy over the long term.
"Contracting-out should either be abolished altogether or permittedonly if an individual’s employer’s scheme offers demonstrably better benefits thancontracting-in to the state schemes. We also recommend that the self-employed should be brought within the S2P scheme.The self-employed would invest through the National Pension Scheme, or be able to joinan appropriate industry wide scheme, or approved stakeholder pensions. The same rulesshould apply to workers in fragmented industries where the collective approach is difficultto take root.
"A radical consumer focused measure would be to introduce a single PersonalRetirement Account (PRA) based on national insurance numbers to allow consumers to keep track of all theirpensions entitlements. Massive investment in technology is needed to consolidatepensions data so we can establish a comprehensive picture of pensions provision in theUK, and reduce costs for the long term. Contracting-out adds to the complexity of thepensions system and appears to offer little or no real benefits."
Forum Response: Association of British Insurers
A spokesperson for the ABI said: "The government has rightly done a lot to help today's poorest pensioners. But the complexities surrounding pension benefits and means-testing sends out mixed messages to consumers who do not know if it is their best interests to save. State pension reform is paramount if we are to encourage people to meet the costs of saving for retirement. But this is not all. The ABI have called for amendments to the Pensions Bill to include simplification of Defined Contribution (DC) schemes and were please at the recent announement of the government review into the complex indexation of DC pensions. Simplification needs to provide genuine benefits for the consumer and provider and incentives need to be far reaching and clearly communicated. Consumers need to be able to see that it 'pays to save'."
Forum Response: Association of Retired and Persons Over 50
Don Steele of Association of Retired and Persons Over 50 told ePolitix.com: "The call by the Pensions Commission for more simplicity in the pension market and a greater role for State provision is only remarkable because it did not come earlier. For too long both government and their advisers have been determined to ignore what to the NGO sector has been patently obvious for many years, namely, that the market cannot deliver on its promises and only the State can guarantee an equitable and adequate basic income in retirement.
"For several years Association of Rertired and Persons 0ver 50 has called for the introduction of a universal, non means tested State pension linked to average earnings and paid at a level which would provide underpinning for additional personal provision. The organisation has strongly advocated an 'add on' facility within the State system whereby the payment of additional voluntary contributions (AVC's) could enhance the level of income on retirement. This would serve a duel purpose of a guaranteed minimum income and personal control over the eventual level attained.
"The well meaning concentration upon means testing to reach the poorest pensioners has failed both the intended recipients and the general population and it must now be hoped that the forthcoming Pension Commission Report will provide an opportunity for the government to change its position and build upon the experience gained."
Forum Response: Association of Consulting Actuaries
Gordon Pollock ACA chairman said: "The ACA has called for simplification of the State pension system including increasing the basic state pension and ending the second tier state pension. Given the huge investment of time and energy in examining how pensions could be simplified ahead of the present Pensions Bill being tabled, there are real concerns that this legislation will end up as another lost opportunity.
"When the latest pension reforms began it was a recognition by government that over-regulation was seriously discouraging employer pension provision and was driving costs up to unacceptable levels. Whilst considerable progress has been made to simplify pension tax regimes for the majority of people, I really wonder whether the Pensions Bill as a whole has in any way really achieved its objective. Whilst there are simplification measures within the Bill that we welcome, it is now difficult to see any major savings set against a whole raft of new extra costs. That being the case, I struggle to see how the Bill will encourage wider provision without some of the powers in the Bill 'to require employers' being invoked, at even greater cost,"
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