The Pensions and Lifetime Savings Association's Joe Dabrowski sets out the major issues that pensions policy must tackle, including the unintended consequences of an accelerated increase in the state pension age.
In January, the Pensions and Lifetime Savings Association responded to John Cridland’s independent review of the state pension age. We called for no further increases to the state pension age, and suggested that the best way to enable this would be by removing the triple lock.
There has been a great deal of debate around the triple lock since the beginning of the year, culminating in the recent decision to safeguard it until 2020.
People with lower than average life expectancy might not live long enough to receive their state pension
This was undoubtedly a factor behind the recent decision to speed up the state pension age increase; it will now reach 68 between 2037 and 2039, as opposed to between 2044 and 2046.
Just over 7m people in their late 30s and 40s will be affected – the sandwich generation. This group are also most at risk of having inadequate private savings, as they have not had the same access to final salary pension schemes as their parents, and are too old to enjoy the full benefits of auto-enrolment.
The government must consider the consequences of this early increase for these people, and offer a solution.
Financial MOTs could help
When considering increases in the state pension age we must remember that these increases will affect cohorts of pensioners in different ways.
The most stark possibility is that people with lower than average life expectancy might not live long enough to receive their state pension. There will also be people in this group who cannot stay in work until their late 60s.
One of Cridland’s recommendations could provide an answer to this problem. The report suggests that, like the NHS offer of a health check at 40, there should be an option to assess financial health in middle age as well.
For those people who will need to work longer before receiving their state pension, the midlife financial MOT would help them make smarter choices to boost their savings.
Take action on gig workers
Another recent report that will impact retirement is Matthew Taylor’s review into the gig economy; the report considered how employment practices need to change in order to keep pace with modern business models.
While much of the press coverage focused on zero-hour contracts and the minimum wage, people’s access to workplace pensions will also be impacted.
The government needs to provide clarity around dependent contractors and auto-enrolment.
Failure to address these issues could accidentally create different classes of worker: those with automatic access to workplace pension saving and an employer contribution, and those without. This is a long-term problem that we have the opportunity to remedy now.
Joe Dabrowski is head of governance and investment at the Pensions and Lifetime Savings Association.
