Telegraph – Post-Election Pension Reform

by Dr. Ros Altmann

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The pensions crisis has hardly been mentioned in the Election campaign, even though it is one of the country’s biggest challenges.

As the baby boom generation hits pension age in the next few years, millions are on course for a miserable existence. As we head for demographic disaster, politicians have ducked the difficult decisions, preferring to tinker at the edges, rather than having a root and branch reassessment of pensions and retirement for the long-term.

Official statistics confirm that about half the UK population are saving little or nothing for their old age and may have to manage on state handouts. But our state pension is about the lowest in the developed world – a full Basic State Pension is just over £97 a week – denying millions of pensioners a decent retirement. Surely, sorting out the state pension system would be a vote winner. With 17million people over age 55, you might expect the political parties to be competing to unveil shiny new policies to capture voters’ imagination. Sadly not.

Britain’s pension system used to be considered a model for others to follow. We had a strong retirement savings ethic, generous employer pension schemes and thriving private pensions. In fact, we had more being paid into pensions than the rest of Europe put together. But, the system is falling apart. Most traditional final salary pension schemes have now closed and replacement money purchase arrangements are not delivering good pensions. As interest rates and annuity rates have plummeted, many new retirees are finding their private pensions paying far less than they expected.

In fact, there has been a dramatic drop in savings, just at the time when we should have been building up assets to provide for the rising pensioner population.

So what reforms are the three main parties proposing? They will all increase the Basic State Pension a little by raising it at least in line with earnings growth each year, but there will be no radical reduction in the reliance on means-testing. Pension age will increase for everyone, the default retirement age will go and employers will be forced to automatically enrol their workers into a pensions scheme. The Tories and LibDems will change the requirement to buy an annuity by age 75 and increase the flexibility of pensions allowing some early withdrawal if needed, but none of the parties will urgently address pensioner poverty or introduce new incentives to save. The confusing range of other benefits will stay – winter fuel payments, free TV licences, travel, eye tests and prescriptions, housing benefits, council tax benefits the list goes on. What a shambles.

And don’t forget the other huge issue looming on the horizon. While private sector pensions are been falling apart and state pensions are a mess, public sector pensions have remained almost untouched. These unfunded liabilities continue to mount at an alarming speed, and pose a further risk to our economy – and social cohesion – in future. Millions of future taxpayers may have to pay huge amounts of extra tax to fund pensions – but for people who used to work in the public sector, not themselves. Is it sustainable to expect taxpayers to fund very generous public sector pensions that they themselves will be denied?

So what do we need? I believe it’s time to take the politics out of pensions policy and have a truly independent body to oversee pension and retirement policy for the future. Politicians cannot be trusted with pensions. Political time horizons are far too short – five years at most. Pensions policy has to last for decades.

We urgently require a fair, basic minimum state pension to form a stable base on which private savings can safely be built. No more mass-means-testing, no compulsory annuitisation, better incentives to save and fairness between public and private sector pensions. With a huge deficit to finance and an ageing population to support, whoever gets pension saving back on track is surely onto a winner.