Comments on Pensions Green Paper
by Dr. Ros Altmann
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recently published Green Paper on pensions reform contains many
proposals. The document is produced by the Department for Work
and Pensions. The proposals relating to ‘Work’ are
extremely valuable, but the proposals relating to ‘Pensions’
are, sadly, wholly inadequate. There is little in the
Paper’s proposals that will address the real crisis of confidence
in our pensions system. No new incentives are proposed which
would encourage basic rate taxpayers to put money into pensions, if
they were not doing so before. In addition, the State pension
system has not been addressed at all, and the operation of the State
system undermines the private system. As long as there is
means testing which spreads to most of the pensioner population, the
incentive to put money into pensions will be lacking. Pensions
are no longer suitable for most people (unless they pay higher rate
tax or have substantial sources of other income). However
cheap and simple the pension system becomes, if pensions are not
suitable, they are not suitable.
Green Paper does contain some useful proposals, but there are many
disappointments. Some of the most important are listed below:
Points 0f Pensions Green Paper
of flexible and gradual retirement
tax regime for pensions
of ‘trivial commutation limit’ to £10,000
to consult employees before making changes to pension schemes
self-employed into the State scheme
0f Pensions Green Paper
increased protection or compensation for those whose pension rights
were not protected by legislation, even though the Green Paper
states that the purpose of pensions law is to protect pensions –
‘legislation is there for a reason – to protect the pension
rights of members’ (p.54)!
on words – short on action. Measures are required to improve
paper has not come to grips with the urgent need to manage the
change from a primarily DB system, to one which is primarily DC.
We have reached a watershed period in pension provision in the UK at
the start of the 21st Century and the old model is breaking down.
In order for DC to be a success, the issues of contributions,
investment profiles and annuities needed to be tackled, but have not
new incentives for pension contributions by or for target group of
is no recognition of the need to structure dedicated DC investment
products, suitable for different types of people, different age
groups, risk profiles etc.
consulting on annuities – we’ve just done this.
changes to state system, pension credit to remain and S2P not to be
joined with BSP. Just because we are forecasting that the
public cost of providing pensions will remain low up to 2050, does
not mean all is well. Given a substantial increase in the
proportion of elderly to younger people, this simply implies that
either the burden of providing adequate pensions is being
transferred from State to employer (or private individuals) and/or
that increasing numbers will be living on very low incomes.
Both of these outcomes have significant negative implications for
economic growth in future. This issue needs to be recognised
and tackled. Corporate Britain cannot afford to underwrite
long-term pension liabilities which are being met by the State in
other European countries. The profitability of our firms will
suffer significantly and our industrial competitiveness will be
of contracting out, with no real explanation of why the complexity
it entails is worthwhile.
to pensions are mainly ‘supply side’ oriented, rather than
tackling ‘demand side’ issues ie. just giving people information
and simple products will not increase pension contributions unless
people actually want to engage in the process in the first place,
which they currently don’t.
initiatives to ensure advice is more widely available e.g.
encouragement of specialist and basic level of advice and incentives
for employers to offer access to independent advice.
recognition of the fact that, if policy tries to make it cheaper for
employers to provide pensions, then the pensions provided will be
paper suggests reductions in contribution rates of 20%, 30% and
more, with equanimity.
call for the financial services industry itself to simplify its own
processes, procedures, terminology, application forms and so on.
Customers find all the jargon so confusing.