Rob recently led the Westminster Hall Debate on the Future of Pensions with an aim to highlight the fundamental need for change in pensions policy and how this change can be achieved in the future.
Pensions are intrinsic to all of us, and yet a recent study found that 22 million working age adults don’t feel that they understand enough about pensions to make decisions about savings for retirement. This highlights that we need to do more to ensure people feel informed and empowered to save.
Pensions are complex and hard to understand, and whilst legislation such as the Pension Schemes Bill 2019-21 has aimed to make pensions easier to understand so that people can better plan for their retirement, more needs to be done in regards to pension policy to ensure that consumers can maximise the benefits of pension saving. Auto-enrolment, the annual and lifetime allowances, financial advice and guidance and the costs and charges associated with pensions are all areas that need updating and changing in order to achieve this.
Ultimately, wider change is needed within the pensions industry, and one way to achieve this and to encourage people to engage earlier with pensions is by improving the accessibility and reach of financial advice and guidance. Despite the benefits financial advice can bring, only 8% of all UK adults have received it. While this is an increase from previous years, this figure is extremely low, especially when considering that research has found that those that have sought professional financial advice are better off by an average of £40,000 in their pension pot compared to those who did not seek advice. Financial advice needs to be encouraged, and not just seen as something only the wealthy should seek, and instead as a viable option for everyone so that they can have the best possible future and retirement.
In addition to making the most of financial advice, Pension Credit needs to either be completely reformed or ensure that all those who are eligible for this benefit are receiving it. Despite campaigns to encourage its uptake, it has stagnated at around 60% for the last 10 years and it has never been more than 70%. Research from Independent Age estimates that the cost to the Government of those eligible for Pension Credit but not taking it is around £4 billion a year in increased NHS and social care spending. It is evident that this needs to be fundamentally changed so that those who need the financial help the most, receive it. One way to do this, would by making Pension Credit a full or partial auto-payment benefit, meaning no claim would have to be made and basing it solely on income levels.
Another way in which the pensions industry needs to change is through the auto-enrolment scheme. The minimum contribution rate of 8% in auto-enrolment needs to increase to 12 or 15% so that people can ensure they have a good retirement. Analysis done by the Pensions and Lifetime Savings Association suggests that the current contribution rate of 8% is simply not enough for people to have a good standard of living in retirement. Considering that 43% of savers do not know how much of their monthly salary they should save into their workplace pension; this increase would benefit a great many individuals by increasing their savings.
A further area of pension policy which could benefit from positive change is the issues relating to annual and lifetime allowances. There is no need to have both allowances, as saving should be encouraged and individuals should not be penalised for taking on extra work and saving more into their pension. A potential solution to this issue would be to remove the tax penalty for breaching the annual allowance but restrict the amount of tax relief available to the current limits.
The link between climate change and pensions likewise needs to be considered. With pension funds globally holding around $20 trillion in assets and being long-term investments, they are an integral part of socially responsible investing (SRI) and can play a major part in helping the UK to reach net-zero. According to the Make My Money Matter Campaign, sustainable pensions are 27x more impactful in reducing your carbon footprint than stopping air travel and following a plant-based diet combined. Although it is inappropriate to force companies to invest in a socially responsible way, it is certainly something that should be considered as we move into the future.
Pension policy is a topic which is incredibly important and will impact all of us in later life as we look to retire, and it is the responsibility of all of us to look at how we can shape it positively to provide the best retirement for as many people as possible.
Commenting on the importance of pensions Rob said:
The contributions and sacrifices pensioners have made throughout this pandemic, and indeed throughout their lives, are considerable. It is only right that our policies recognise and reflect their hard work, allowing them to live out their retirement in comfort and with the peace of mind that their pension will see them through.
Other speeches of Rob's can be found on his YouTube channel: https://www.youtube.com/channel/UC7jZoB6mYSLRynZOIZ6CQcw