The second phase of the government’s pensions review, focused on whether people are saving enough for retirement, is due to be published on Monday, but former Pensions Minister and LCP partner Steve Webb says its value will depend on whether it asks tough questions and is free from Treasury interference.
Webb has outlined three key tests to judge the review’s credibility. His first test is whether the review was given freedom to explore reforms that may have fiscal implications, such as increasing minimum auto-enrolment contributions or adjusting tax relief. He says: “A proper review can only do its job if it is allowed to consider all options and has not been hamstrung by the Treasury from the start.”
He warns that if the Treasury restricted the review’s ability to consider such changes, its conclusions could be limited in scope.
The second test is whether the review takes a comprehensive view of retirement income by considering both private and state pensions. Webb notes that for many people, particularly women, the state pension makes up a large share of retirement income, and believes it must be included in any proper assessment of adequacy.
The third test is whether the review addresses the link between long-term pension saving and short-term financial resilience. He argues that proposals to raise pension contributions should be considered alongside policies that help individuals build up accessible savings.
Webb highlights models such as the ‘sidecar’ approach, where a portion of contributions is diverted into an emergency savings pot, and suggests the review should also consider whether pension savings could support first-time home ownership, particularly in light of the expected rise in pensioners living in rented accommodation.
The outcome of the review is expected to inform the government’s long-term strategy on pension saving and retirement adequacy.
LCP partner Steve Webb says: “This review is a once-in-a-generation chance to tackle the growing crisis of inadequate pension saving in the UK. To be effective, the review must not be nobbled by the Treasury from day one, but must be free to come up with its own recommendations – even if these cost money.
“It needs to take account of the whole pension system, including the state pension, which is so vital to many. And it needs to think about saving in the round, including short-term cash saving and saving for a house. One of the worst outcomes for today’s working age population would be to end up having to fund a rent out of a meagre pension pot, and this review is the chance to look at that issue as well”.
