Professional Pensions column on urgent post-election pension reforms – 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

    Professional Pensions column on urgent post-election pension reforms

    Professional Pensions column on urgent post-election pension reforms

    Professional Pensions column on urgent post-election pension reforms

    by Dr. Ros Altmann

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    It is vital that
    the State pension system is reformed urgently and radically. State
    pensions are so low that half our pensioners need means-tested
    pension credit to avoid poverty. But this penalises private pensions
    by at least 40%, makings pensions ‘unsuitable’ for huge sections of
    the population. This is a vicious circle, undermining private
    provision and preventing tomorrow’s older people from contributing
    to ensure they do not fall into the means-testing trap themselves.

    A higher, universal state pension, of £110 per week (pension credit
    guarantee level), would end pensioner poverty and the disincentives
    of means-testing. It would cost £7bn a year, which could easily be
    afforded with £11 billion saved by ending contracting-out. The state
    pension would be flat-rate only, not earnings-related. Just because
    people earned more when they were working, why should the Government
    pay them more when they are not working? There should be a clear
    division between state and private provision.

    Once the state system no longer penalises private pensions, there
    would be a clear message for individuals. The state will provide
    £110 a week, which is enough to live on, but only just. If you want
    life’s little luxuries, you will need more. Saving will give you a
    chance of a better lifestyle in retirement.

    Initially, we will also need to encourage people to believe in
    pensions again. An essential first measure for this is to properly
    compensate all the victims of employer scheme wind-ups, who trusted
    in pensions and have lost out so badly. Then better incentives for
    pension contributions should be considered. Using tax relief is
    unfair – giving most incentive to those who need least! Matching
    payments, providing the same level of incentive for the same
    contributions, would be fairer.

    To sum up then, first we need to reform state pensions, with a
    universal citizen’s pension of £110 per week, no contracting out and
    no state earnings-related pensions. Then we should improve
    incentives for private pension contributions using matching
    payments, rather than tax relief. We would not need compulsion, but
    auto-enrolment would be helpful. Individuals should be left to
    choose how to finance their income in later life. Do they want to
    just live on the state minimum, save more for themselves, or
    continue working longer?

    Which leads to the final piece of the pension reform puzzle.
    Pensions are being forced to last too long and this is
    unsustainable. We need to re-think ‘retirement, encouraging gradual,
    flexible withdrawal from the labour force. Part-time working at
    older ages will be better for individuals and for the whole economy.
    Pensions could supplement income, rather than being a total
    replacement, making them more affordable. With these reforms, we
    would truly have a 21st century pension environment, that will be
    sustainable and adaptable going forward.

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