The Financial Times reports that the second phase of the UK Government's Pension Review will be launched on 15 July, at the Chancellor's Mansion House Speech.
Ahead of that, the pensions minister, Torsten Bell, has confirmed that the Government will not be "raising AE [automatic enrolment] rates" before the next general election. This appears to refer to when any increases would be implemented, rather than when they might be announced.
Although there are ways to increase contribution amounts without changing headline contribution rates – removing the lower qualifying earnings threshold, as proposed by a previous DWP review in 2017, would do that – Mr Bell's narrow phrasing probably does not indicate that such changes might be in force sooner. The Office for Budget Responsibility's fiscal projections currently assume that nothing happens before 2030 at the earliest; any change here would make it harder for the Chancellor to hit her fiscal rules.
Mr Bell added that the review will be "a big piece of work": the emergence of retirement was "a victory of leisure over grind" and the task is "to lock in for the middle of the 21st century what the 20th century won". Defending the sequencing of the Government's reviews, he said: "you can't ask people working hard to save more" unless you've made those savings "work as hard as they can", which he said was the "central objective" of the Pension Schemes Bill.
The minister was speaking at the launch event for the final report of the Institute for Fiscal Studies' own Pension Review. This mostly pulled together proposals published over the previous two years, with some tweaks. The IFS's recommendations include:
IFS recommendations for State Pensions
- The Government should set a target for the New State Pension as a proportion of full-time median earnings. Once this has been reached, the Triple Lock should be abandoned in style of a smoothed earnings link of the sort used in Australia. Rather than ratcheting up the value of the pensions relative to earnings over time, this only allows temporary rises relative to earnings when inflation outstrips earnings growth. (This relies on politicians being prepared to award a low cash-terms increase when inflation and earnings growth are both abnormally subdued. If memories of Gordon Brown's 75p/week increase prevented that, the proposal could be adapted to include a minimum cash or percentage increase; that would lead to more/bigger deviations from earnings, but they would still only be temporary.)
- The State Pension Age should only rise with longevity, and in a way that would still see retirement lengths increase. People should be told their indicative State Pension Age when they are 50 and this should be nailed down 10 years before. (The previous Government was committed to 10 years' notice. So far, the current Government has only talked about giving "sufficient notice".) There should be more generous means-tested support for people within one year of State Pension Age
IFS recommendations for private pensions (accumulation)
- The 3% employer contribution under automatic enrolment should not be contingent on the employee making contributions. (If the Government adopted this recommendation, it may want to look afresh at whether cash alternatives to core employer contributions should be permitted. As recognised in an earlier IFS publication, policymakers would also need to consider what must happen where employees opt out of contributory DB schemes; requiring automatic enrolment into a DC alternative would have a cost for the public sector.)
- For most employees, combined minimum default total contributions should be 3% of earnings from the first pound to £9,000 (i.e., £270, all from the employer) plus 10% of any earnings between £9,000 and £90,000. But, within this, the 3% employer contribution would stop at the higher rate tax threshold (currently £50,270), as now. The IFS says a key advantage of its proposals comparted to other ways of boosting contributions is that it would have less effect on the take-home pay of lower earners
- The earnings trigger for automatic enrolment should be reduced to £4,000 and the age range expanded to 16-74. (This combination of enrolment at older ages and higher default contributions for higher earners might cause problems if the Money Purchase Annual Allowance were reduced again.)
IFS recommendations for private pensions (decumulation)
- As proposed in the Pension Schemes Bill, people should be guided towards ways of drawing their pensions that reduce the risk of running out of resources. (The Minister's speech included a strongly worded defence of this policy: "you can use the word 'freedom' all you like, but there is nothing liberating about the risks and complexities currently involved in turning your pension pot into an adequate income.") The report suggests that "flex then fix", involving later life annuities, may be a good approach for many, but it was explained in the Q&A at the launch event that the priority was to make recommendations which could be applied now and that the IFS did not want to make it harder for decumulation-CDC to develop
- Reposition how the tax-free element of pensions is presented, so it does not direct people to take large lump sums and increase the Normal Minimum Pension Age so it is 60 when the State Pension Age reaches 68
