The government’s decision to revive the Pensions Commission is welcome, but a better idea would have been to introduce a financial resilience review that examines the entirety of the financial challenges that people face.
The DWP’s ‘Finishing the Job’ policy paper aims to improve retirement outcomes ‘for those on the lowest incomes and at the greatest risk of poverty or undersaving’.
It is crucial that it learns lessons from the implementation of the last Pensions Commission which left millions of the working poor worse off, not better.
The government has flagged many key issues. The huge variations in life expectancy across different postcodes are a tragic statistic hanging over any decision about increasing state pension age. Similarly, the policy paper highlights the 48 per cent gender pensions gap, as well as 3 million self-employed people not saving.
The challenges impeding the retirement readiness of different ethnicities and faith-based groups also need to be included, along with debt and sidecar savings.
But a key issue for people of all genders, faiths and income brackets is housing. Which is why a whole-of-life finances review would be more useful than a pensions-only one.
Pensions do not exist in a vacuum – and currently many of those in the growing private rental sector are destined to see their entire pot subsidising the housing benefit they would have got had they not saved. We need to answer once and for all the dilemma of pension or property, and whether we can do both.
So what was wrong with the implementation of the Turner report? The implementation of the single-tier pension. Forgive me if you’ve heard this one before, but the biggest losers were the millions of low earning contracted-in workers, a group containing all of the 10-12 million people that Turner identified as saving little or nothing towards their retirement.
Under the old system, a contracted-in worker could build up £192.45 a week, in 2012/13 terms, with median and higher earners getting considerably more. Under the new regime that has fallen to £144 a week. Auto-enrolment pensions are unlikely to replace that loss. Meanwhile those contracted out, who by definition have other pensions as well, get the same pension but are sitting on contracted-out pots probably now exceeding £200,000 – free retirement money from the government to those who needed it least.
The DWP’s Pensions – Finishing The Job paper airbrushes state second pension out of history. Take a look at Figure 2, which shows the new state pension coming in at what looks like almost double the basic state pension. But that’s because it makes no mention whatsoever of S2P. S2P really is the Trotsky of UK pensions.
Why does this matter now? It’s about representation. I would guess everyone making decisions about single tier was contracted out. The contracted-in millions, unrepresented by the financial services industry or unions, lost out.
So we need proper representation of all groups from society in the decision-making process. That means people of all income groups, from all faiths and ethnicities, and people in rented accommodation as well as homeowners.