The Centre for Policy Studies (CPS) has urged new pensions minister Ros Altmann to increase the private pension age to 60 by 2024.
Currently, the private pension age stands at 55, expected to increase to 57 by 2028. But according to a CPS report, Some Suggestions for the New Pensions Minister, the pension age increase would align better with increased life expectancy which has improved considerably over the past few decades.
But Martin Parish, Area Director at Aon Employee Benefits has expressed concern over some of the proposed changes as outlined in the report:
“Certainly, increased life expectancy will mean a greater dependence upon pension savings for longer timeframes,” he said. “However, we know that the new pension landscape with enhanced flexibility and choice has been well received by the public and I fear that taking away earlier access will dampen the renewed enthusiasm for pension savings.”
The CPS report includes a ‘wish-list’ of recommendations intended to encourage a greater savings culture, such as:
- Monitoring the roll-out of auto enrolment, with a particular focus on SME opt-out rates
- Encouraging employees to increase their saving rate from 5.9 per cent to 13 per cent
- Establishing a not-for-profit annuity auction house to encourage shopping around for annuity deals
- Simplifying the regulatory framework between the Financial Conduct Authority and the Pensions Regulator
- Encouraging the National Employment Savings Trust and competitors to implement a collective drawdown capability
- Merging national insurance contributions and income tax into one simple earnings tax
- Awarding savers with 50p per £1 saved in pension tax, up to an annual allowance of £8,000, regardless of taxpaying status
- Capping total combined annual ISA and pension contributions at £30,000 per year
- Scrapping lifetime allowance altogether
- Combining the 101 local government pension scheme funds into a single fund made up of four separate and competing asset allocators.
Writing in the document, CPS research fellow Michael Johnson described the suggestions as mainly ‘cost-neutral’, with some, like the single-tier State Pension proposal, continuing to build on on-going initiatives implemented by Ros Altmann’s predecessor, Steve Webb:
“By encouraging the rebirth of a savings culture, they would, if sensitively implemented lead to both greater independence and prosperity for individuals in their retirement and greater sustained economic growth for the whole nation.”
Parish said: “Overall, the wish list would seem a step in the right direction, particularly with simplicity and coordination as the core principles. But for these proposals to have some merit, people need to be shown the upside of their actions with communications to be along the lines of ‘what does auto enrolment mean for you?’, ‘if you increase your saving rate, the potential benefit is…’ and so on. But this can be delivered without the need for wholesale structural or legislative changes which will be time consuming and expensive, particularly after the year of change the industry has faced.”
He added: “In the workplace, where significant strides are being taken by employers to engage their people on financial matters, we know that greater financial education leads to increased savings rates amongst participants, especially when aligned to the greater access and choices that savers will have. Countered with this there needs to exist a level of competition within the provider market to enable continued product development to meet ever-changing user needs and, as such, a move to a centralised ‘shopping around’ function would be, in my opinion, counter-productive.”