Following reports today that a major review into pensions adequacy has been shelved amid mounting concerns about loading extra costs on employers, (source: Financial Times) Tom Selby, director of public policy at AJ Bell, tells us why he believes that pushing back the decision simply stores up problems for the future as he comments:
“Labour has placed ‘fixing the foundations’ of the UK economy front-and-centre of its political strategy and it appears the much-anticipated review into pensions adequacy has fallen victim to this push for growth. Any review of adequacy would have to consider automatic enrolment minimum contributions which, in turn, would have raised the prospect of increasing those contributions and potentially the burden imposed on employers. In the wake of the huge tax hit firms have been forced to wear following the Budget, tackling retirement saving adequacy may be viewed as less of an immediate priority.
“However, the foundations of pensions are also shaky and delaying meaningful action to address these problems will leave millions of people at greater risk of an income shortfall when they reach retirement. There is widespread agreement that the current minimum levels of auto-enrolment contributions are insufficient to deliver good outcomes in later life for most people, yet we still don’t even have a firm timetable for introducing the relatively modest reforms proposed in 2017 – namely applying minimum contributions to the first pound of earnings and reducing the qualifying age from 22 to 18. Furthermore, millions of self-employed workers are not included in auto-enrolment, leaving them at severe risk of having little or nothing saved for their later years.
“In addition, savers face perpetual uncertainty over the way pensions are taxed, with the latest Budget demonstrating the damage fears over potential cuts to retirement savings incentives can have on both consumer behaviour and trust in pensions. It is for exactly this reason that AJ Bell is campaigning for a ‘Pensions Tax Lock’ – a commitment from government not to alter tax relief or tax-free cash entitlements over the long term. If plans to address adequacy are being kicked into the long grass, providing a bit of certainty about pensions taxation feels like the bare minimum the government should do to reassure people.
“Ultimately there may never be an easy time to scale up auto-enrolment, but pushing those difficult decisions back will simply store up problems for the future. Labour now needs to come clean on exactly how it plans to tackle pensions adequacy, which remains one of the most pressing issues facing society and is a potential ticking time bomb if left unaddressed.”
