Speaking at the inaugural Centre for Retirement Reform seminar in London, Johnson said Nest savers should be allowed to use their assets to buy a limited term income product to fund living expenses until a higher basic state pension kicked in, 10 or so years after state retirement age.
Proposing a radical overhaul of retirement saving, Johnson called for a combined annual maximum limit for tax-incentivised savings of £45,000 with a maximum £35,000 to go in pensions.
Johnson challenged the view that there should be tax relief at all for pensions, as abolishing it could pay for a basic state pension that would remove the need for means-testing. He argued that the £30bn of up front tax relief on pensions should be reallocated to a higher basic state pension if the policy objective is relieving pensioner poverty.
Johnson said: “Nest is fundamentally flawed, but we can’t kill it. Yes, we need a higher basic state pension. Let’s start it 10 years after state pension age and allow Nest assets to be compressed into that gap. And let’s top up contributions into Nest to £800 a year while people are working so when they retire, people will have a meaningful sum.
“Is the £30bn of tax relief on pensions there to reduce pensioner poverty? If that really is the purpose of tax relief, then cut to the chase and get rid of it, and add it to the £55bn currently spent on state pension.”
The Centre for Retirement Reform has three core objectives – a raising of the state retirement age to 70 as soon as practicable, a universal pension at or above the current means-tested level and a new long-term savings product structure to replace the current private pension model that it argues is no longer fit for purpose.