Talking head: Jargonfree Benefits' Steve Bee explains why the most recent round of reforms to the UK's pensions system is a pivotal step on a momentous journey.
William Beveridge understood that back in the 1940s. Removing the Poor Laws from the statute book and proposing a subsistence-level basic state pension underpinned by the contributory principle was a good attempt at producing a sensible pension framework.
But it did not work. We ended up at the beginning of the new century with arguably the most bewilderingly complex pension system on the planet. The attempt at radical simplification in 2006 failed, but looking back it was bound to. To achieve simplicity we needed root-and-branch reform, not deck-chair rearranging.
The reforms in the second decade of the 21st century have done a lot to attack the root causes of complexity
The reforms in the second decade of this century have done a lot to attack the root causes of complexity. All future retirees will soon have a subsistence-level state pension, and means-tested handouts for older people will hopefully become the exception rather than the rule.
Private pension savings, thus freed from the danger of being devalued by means-tested support and benefit withdrawal, can at last guarantee real value. It is now likely that every pound saved in a pension should make savers at least £1 better off than non-savers.
The auto-enrolment reforms will for the very first time mean the entire UK workforce will have access to a funded workplace pension with a compulsory contribution from employers. That’s a good start and can clearly over time be built into something quite significant.
The removal of compulsory annuitisation is another step in this momentous journey. The break between state-provided pensions and private funded pensions is complete.
We are finally in a position where the state will ensure no old people will go completely without, but where if we want more than the subsistence-level pension we have a sensible private system we can use for that purpose – a system in which the whole UK workforce will participate.
Steve Webb and George Osborne have built on the foundations laid in the dying moments of Gordon Brown’s government and achieved something that was beyond our reach for over a century.
This is a good time to be in the pensions industry and we can at last have realistic hopes of radical simplification.
Steve Bee is CEO and founder at Jargonfree Benefits
