The government has announced the revival of the Pensions Commission, over 20 years after it was first launched.
In late 2002, Tony Blair’s Labour government asked Lord Turner to chair a Pensions Commission that would examine the future of non-State pension provision. The move was prompted by concerns that the rapid closure of private sector final salary pension schemes would leave employees with inferior – or no – retirement savings.
In 2006, the Commission proposed a radical restructuring that became automatic enrolment in workplace pensions six years later. By 2012, the Conservative/Liberal Democrat coalition was in charge, but there was a political consensus that the Commission’s recommendations should be followed through.
Since 2012, the workplace pension regime has been largely unchanged. The key elements are:
- Automatic enrolment in an approved workplace pension for all ‘workers’ aged 22–65 earning at least £10,000 a year (about 16 hours a week at the National Living Wage).
- Employer contributions of at least 3% of all earnings between £6,240 and £50,270 a year (band earnings).
- Worker contributions to bring the total rate up to 8% of band earnings.
It is widely agreed that the system has been a success: 88% of eligible employees are now saving for retirement against 55% in 2012. However, the government is concerned that many are not saving enough based on its calculations:
- Retirees in 2050 are on course for £800 (8%) less private pension income than those retiring today.
- Four-in-10, or nearly 15 million people, are under-saving for retirement.
- Over three million self-employed (out of about 4.4 million) are not saving into a pension.
These issues have been widely acknowledged for years. In 2017, the last government published a paper examining increased contributions and reducing the minimum age to 18. Six years later, under backbench pressure, it passed an act allowing it to do both but chose to do neither.
The procrastination reflected a political reluctance to make employers or workers contribute more. There is a suspicion that the same anxiety is behind relaunching the Pensions Commission. Complaints about the cost-of-living from the electorate and the recent sharp increase in employers’ National Insurance contributions both mitigate against any rise in pension contributions. Eventually, after the next election, contributions will almost certainly increase. In the meantime, why not pre-empt the inevitable and start boosting your pension now?
To discuss your financial planning, contact our Financial Services team on 01142 664 432 or info@smh.group
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