Feature article published in Daily Mail on pension reform – Ros Altmann

    Ros is a leading authority on both private and state pensions,annuities and
    retirement policy. Numerous major awards have recognised her work to
    demystify finance and make pensions work better for people.

  • Ros Altmann

    Ros Altmann

    Feature article published in Daily Mail on pension reform

    Feature article published in Daily Mail on pension reform

    Feature article published in Daily Mail on pension reform

    by Dr. Ros Altmann

    (All material on this page is subject to copyright and must not be reproduced without the author’s permission.)

    It’s time for
    some clear and joined-up thinking on pensions policy. Pensions have
    two main functions. Firstly, providing social welfare and secondly,
    as an investment vehicle. Social welfare should be Government’s
    responsibility, just as unemployment benefit ensures the jobless are
    not in abject poverty. Unfortunately, UK pension policy has tried to
    force the private sector to take responsibility for both social
    insurance and the investment aspects. This has proved unaffordable.

    Continuous cuts in state pensions over the years, plus billions of
    pounds spent on contracting-out rebates, have left us with the
    lowest and most complex state pension system in the developed world.
    Forcing company schemes to provide revaluation, spouse cover and
    inflation-linking has left employers struggling with huge deficits.
    The ideology that private funds, invested in equities, would provide
    enough to meet pensioners’ social welfare and investment needs, has

    Attempts to transfer social insurance costs onto the private sector
    have backfired, because the costs and risks of private pensions are
    too high. Nearly half our pensioners need means-tested pension
    credit to avoid poverty, and mass means-testing of pensioners is
    undermining private pensions altogether. Since pension credit
    claimants lose between 40% and 100% of their private pensions, many
    people shouldn’t contribute to pensions at all. Reform of state
    pensions is essential, to prevent confidence and contributions
    falling further.

    What can we do?

    Introducing a £110 a week citizen’s pension, indexed to earnings,
    would simplify state pensions and clarify the state’s social
    insurance role, without undermining the investment role of pensions.
    Ending contracting-out would save £11billion a year, easily
    financing the extra £7bn annual cost of citizen’s pensions.
    Government would no longer provide earnings-related pensions, but
    why should society ensure that higher-earners also receive higher
    pensions? Surely it is up to them how much they save.

    There would be a clear distinction between state and private
    pensions. Government provides enough to live on, but only just.
    Anyone wanting a better lifestyle later, would need private savings
    and these savings would not be penalised by means-testing.

    Policymakers would still need to encourage the investment element of
    pensions, to provide more than the state minimum. Although
    compulsory contributions may sound appealing, they could prove
    dangerous. Many employers and individuals are in debt and forcing
    them to contribute, especially with pension credit in place, could
    be the biggest mis-selling scandal ever. Compulsion would also
    damage economic performance, with extra pension contributions
    reducing wages, investment, employment or profits. However, ‘soft
    compulsion’, including contributing part of each year’s pay rise
    into a pension, or automatic enrolment into company schemes, while
    still allowing people to opt-out, would be much safer.

    Since workplace provision is much more cost-effective than
    individual pension arrangements, employer schemes are important.
    However, with lifelong employment a rarity, average job-tenure
    around five years and pensions confidence collapsing, employers need
    meaningful incentives to offer pensions to their workforce.
    Individuals, too, need better incentives. Just relying on tax relief
    – which gives least help to those who need most – is unfair and
    inefficient. Matching incentive payments, say an extra £2 for every
    £3 anyone contributed, would be fairer and more effective.

    Raising pension age to 70 sounds sensible, but is not a long-term
    solution. By 2030, age 70 may be as outdated as 65 is now. Far
    better to re-think retirement altogether. Pensions were designed to
    last 5 or 10 years, but we now expect to live on them for decades.
    What a waste of resources! With improved health and working
    conditions, abandoning fixed retirement ages and encouraging
    part-time employment in later life, is more flexible and healthier
    for people and the economy. Retirement should be a ‘process’ not an

    In summary, a citizen’s pension, better incentives, plus gradual
    retirement, are radical, workable reforms, to cater for both social
    welfare and investment roles of pensions. The sooner we approach
    pensions policy with clear thinking, the better.

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