A long-term perspective on pension reform

18 June 2015

Reform of the UK pension system in the 10 years since the Turner Commission has been nothing short of monumental. As a direct result of the Commission’s work we have seen the introduction of automatic enrolment, which has already led to over 5 million people being newly enrolled into workplace pensions, as well as the fundamental reform of the state pension, which will culminate in the introduction of the single state pension from April next year. In addition, we have just seen the introduction of the “freedom and choice” reforms, which give those reaching retirement more options when accessing their savings.

The scale and pace of change in recent years makes it easy to forget how much more still has to be done to prepare for the challenges our society will experience as our population ages, and to reduce the savings shortfall that currently sees 11.9 million people undersaving for their retirement.

The report published today by Reform represents a useful contribution to this debate. It sets out guiding principles for any further changes to the pensions system, along with practical recommendations for reform that will help address the challenges we face.

From a pragmatic point of view, Reform’s package of recommendations represents an ambitious agenda for this parliamentary term. Even so, I have no doubt that these recommendations still will not be sufficient either to guarantee a sustainable long-term future for state pension provision, or to address the shortfall we see in private pension savings.

That isn’t to say that these interventions are the wrong ones, or that there are other solutions out there that could secure the future we want within the next five years. Unfortunately there are no easy solutions. Instead, what it points to is that the system must always be evolving if it is to keep up with a rapidly changing society. For reform to be coherent in these circumstances, pensions and long-term savings policy must look beyond the five year horizon of a parliamentary term.

For this reason, the ABI and other industry bodies advocate the creation of an Independent Retirement Savings Commission. This would be an apolitical body that can give arms’ length advice on the scale of the challenges society is facing, and make recommendations about how to tackle those challenges. Such a body, operating on the same basis as the Office for Budget Responsibility, should be responsible for leading the debate on a national long-term savings strategy, and fostering the cross-party support necessary to deliver a sustainable pensions system. It should also have a remit for considering interrelated policy areas, such as health and housing, which are material for determining standards of living in retirement and making value judgements about government support to different individuals and generations.

In our view, such a body would improve public understanding of the issues and make it harder to pursue short-term political interests at the expense of long-term sustainability. Perhaps just as importantly, it would give those people saving for their retirement a degree of certainty and the confidence they need to make long-term financial plans. Reform has put forward a number of bold and important ideas today. An Independent Retirement Savings Commission would be politically far-sighted and could well facilitate coherent long-term reform. Its establishment would be looked back on in 50 years’ time as monumental indeed.

Dr Yvonne Braun, Director of Long Term Savings Policy, Association of British Insurers

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