Pensions change I'd like to see in 2017
Whether you view it as salutary or troublesome, I’m in no doubt that 2017 will be another year of change for pension policy. There’s a long list of on-going actions in the world of pensions so let’s make sure that what we do is all geared to a national plan with a long-term target.
To start with, we know of two key reviews due to happen in 2017 – a review of auto enrolment and a review of the state pension age.
- I would suggest that auto enrolment has been a qualified success with a number of issues to consider: coverage (self-employed and workers with multiple jobs), contribution levels (to increase to a level that gives a reasonable level of pension on retirement) and decumulation options.
- John Cridland is due to report on the state pension age, most likely recommending an increase (perhaps based around the assumption that workers should be entitled to their pension for a third of their life) and possibly other changes, for example should some workers be eligible to draw their pension straight away on completion of their full number of National Insurance years paid.
If we can establish these basics, perhaps we can then work towards colouring in the detail.
It has been said before but let’s have a National Pension Commission that sits above politics and the short-term tinkering that seems to be the current norm. This commission would have a long-term plan for pension policy. The Government of the time would be able to change the rules but only within the long-term aim of achieving the plan.
Then we need a plan – let’s see some of the ‘big maths’ – roll forward demographics for say 20-30 years, how many people are in receipt of state pension? How many people below state pension age are paying tax? What level of pension would we expect to be incentivised by the government – should it be national average earnings? Should it be more than this?
Perhaps then we also ought to ask some of the more difficult questions:
- With so many pensioners on higher pensions and holding other assets, should there be an extra tax for pensioners earning above a particular level? A difficult one from a political perspective.
- Is the cost of the ‘triple lock’ realistic?
- How much do we have to spend to achieve our goal?
Once we know what we want to achieve then perhaps we can then look at how we incentivise people to get there – do we use tax relief or do we call them bonuses, and then at what level?
Once we have made some big decisions then perhaps we can tidy up some of the complicated legacy rules:
- The lifetime allowance would be subject to change/abolition.
- The tapered annual allowance could go.
- We should consider levelling the playing field between defined benefit and defined contribution schemes and making the transfer regime between the two usable!
- We could look at the death benefit rules, perhaps with some form of encouragement for any surplus on death over say age 75 to be passed on to the pension plan of another family member.
Let’s be a bit bold and step outside the pension ring for a few minutes. Pensions are complex and could well need advice/guidance – here we must get the regulatory regime and definitions right so that people understand what they are doing, how they are doing it and the real value of financial planning.
Let’s also turn the focus back on to pension freedoms – not so much on numbers but on what the money withdrawn is being spent on, specifically whether there is a danger of people running out!
I’ll finish with two points for future consideration. Firstly, we should consider how we can link our pension regime with the ISA regime in a simple way to encourage lifetime saving habits. Secondly, we need to look at how we can assist in the provision of funding for long-term care.
It could all be the ramblings of a mad man returning from a long break – but some of it just might work!