In this new series, Pensions Expert has invited think tanks, charities, unions and campaign groups to outline what they would like to see from the revived Pensions Commission. In this column, Jack Jones of the Trades Union Congress calls for bold action to support those currently underserved by pensions policy.
Dear Pensions Commission…
The revival of the Pension Commission is a very welcome step. Government analysis published last week clearly shows the need for significant change to make sure today’s workers enjoy a decent retirement. Almost 15 million people are not on track to achieve this, with women, black and minority ethnic workers, the self-employed, and those on low incomes most likely to be poorly served by the pension system – or shut out of it entirely.
The revived commission’s remit is to look at the system as a whole, and to make recommendations that “build a future-proof pensions system that is strong, fair and sustainable”.
The original commission’s proposals brought millions more workers into occupational pensions through auto-enrolment. The new commission must, as pensions minister Torsten Bell said, “finish the job” – finding ways to include more workers in workplace pension schemes, and to raise contributions to deliver a decent retirement income.
The changing workplace savings landscape
The commission must also wrestle with developments that were not anticipated by its predecessor. For example, the growing number of retirees in private rented homes or still paying off a mortgage is reducing financial security in retirement.
The number of self-employed workers has also increased significantly, while the proportion of these people saving for retirement has plummeted.
The commission will follow the approach of the original, which was widely praised as an effective model for policymaking. Baroness Jeannie Drake and Sir Ian Cheshire will have the confidence of both trade unions and employers. And Professor Nick Pearce brings important independent expertise. All three are widely respected and well qualified to take a balanced and long-term view of what’s needed.
“Consensus-building will be essential to making sure that their proposals endure like those of the original commission.”
Jack Jones, TUC
The commissioners will work closely with unions and employers, alongside other stakeholders, to forge agreement on the direction of pension policy. This consensus-building will be essential to making sure that their proposals endure like those of the original commission.
A difficult set of challenges
The area where consensus must be secured most urgently is how and when to increase contributions. There has long been widespread agreement on the need for this within the pensions sector. But the previous government missed opportunities to set this in motion by failing to get employers on board.
The current government has already ruled out increases in this parliament. But to increase incomes for future pensioners, a clear timetable for raising employer contributions is vital. The timetable should give businesses time to prepare while firmly locking in when those increases will apply.
The next task will be finding ways for people who are currently locked out of schemes due to low earnings or their employment status to build up some pension wealth.
In doing this, commissioners must weigh up the impact and importance of pension saving for the incomes of low earners, and could explore removing the link between employer and employee contributions. This would ensure more workers are able to save, and that workers who cannot afford to contribute don’t miss out.
The commission must also consider restoring risk sharing, which is essential to an efficient pension system, but was lost with the rise of individual defined contribution schemes. We need a rapid expansion of collective defined contribution schemes. This would get more retirement income from every pound of contribution, alongside a secure income for life at retirement.
Quick wins and broader thinking
While the commission has an explicit remit to make “proposals for change beyond the current parliament”, it should not shy away from identifying quick wins.
For example, the last government passed legislation to lower the auto-enrolment age threshold from 22 to 18, and to remove the lower earnings limit so that contributions are calculated from the first pound of earnings. Implementing these measures, which already have cross-party support, would give a big boost to those entering work today and due to retire in the 2070s.
The first commission successfully argued for the extension of its remit beyond workplace pensions, paving the way for the new flat-rate state pension. Today’s commissioners should do the same.
The state pension will continue to be the main source of retirement income for many people. The job of working out how the overall pension system can deliver an adequate income is impossible without considering the state pension too.
The goal must be to achieve decent standards of living in retirement for all through the state and occupational pensions working in tandem. This is a fundamental need, and the commission offers a vital chance to achieve this long-term policy success.
Jack Jones is pensions policy lead at the Trades Union Congress.
