'We need to look at the wider picture if we want to win in pensions policy'

Like most shopping lists, things will be missed and there will be items that are not really needed. Other items may initially look interesting but simply waste money and will never be used.

My wife gets annoyed with me when I go shopping as I tend to deviate from our shared online list and pick up tactical items, as opposed to a collection of ingredients needed for a particular recipe. She reminds me of the benefit of starting with a meal plan.

There is a parallel here. In recent years, policy changes have been rather more tactical than strategic, focusing on interesting ideas for change, as opposed to a roadmap. A shopping list, rather than a meal plan.

The election in July provides an opportunity to take a longer-term view of retirement planning. Should Labour form the next government, they have stated that they will conduct a full review of the pensions landscape.

They have even rowed back from some of the short-term proposals previously suggested, most notably, the reinstatement of the lifetime allowance.

You have to go back to the early years after stakeholder pensions to reveal the last time we took a long-term view for pensions. These were introduced in 2001, with a compulsion on the employer to set up a scheme, and to pay into it if employees joined, but it was up to those employees to opt in.

That wasn’t hugely successful in improving take up.

There is widespread consensus that 8 per cent of a band of earnings will be insufficient, but there is no plan to change this.

By 2012, a new regime was introduced in the form of auto-enrolment. While the underlying pension products proved to be very similar to their stakeholder forerunners, it was underpinned by the principle that employers would have the added obligation of joining their employees, who in turn would have the ability to opt out, should they so wish.

This was hugely successful in improving take up.

AE was conceived by an independent commission under a Labour government, but largely implemented under the Conservatives, with the steady hand of one of our longest serving pensions ministers, a Liberal Democrat.  

Some people say that the perseverance of this policy can be attributed to the independence of those involved at the outset. There may be some truth in that but, more likely, it comes down to the consensus that was formed and, over time, its self-perpetuating success in improving retirement savings coverage.

AE is more in the mould of a meal plan than a shopping list. A multi-decade plan rather than a short-term intervention.

Top priorities

At this point, there are three main areas of the pensions landscape that any review would do well to consider.

First of all, we need to consider the adequacy of savings levels for people’s retirement. There is widespread consensus that 8 per cent of a band of earnings will be insufficient, but there is no plan to change this.

The 2017 changes – removing the lower earnings limit and reducing the age from 22 to 18 – is a starting point, but the real question is how to increase the headline savings rate. This will materially improve retirement outcomes for people, over time.

Secondly, we need to set out a more strategic plan for long-term pension investments and the role they play in driving economic growth.

There is widespread agreement on the principles, but we will not get pension schemes increasing investment in the UK on purely patriotic grounds. We need to ensure first and foremost that there is a benefit for savers, then consider a longer-term plan to incentivise change.

And, of course, increasing contribution rates will increase the investment capital available.

Thirdly, there is the role of the state. The triple lock was never designed as an indefinite guarantee, nor that it would be annually reviewed. There should be a target for the level of state pension provided, perhaps as a proportion of average salary, with a view that this be maintained once achieved.

And any government will want to continually consider the role of pensions tax incentives, not least because the cost is significant. The idea of ‘deferred taxation’ is still a sound principle, but there are elements of the system that have become overly complicated and may benefit from simplification.

However, any changes that questioned the suitability of a pension for a higher rate taxpayer would risk undermining the central principle of AE: that it is right for almost everyone.

In any event, taking a step back and sorting out a meal plan before we start making the shopping list will be a welcome return to longer-term planning.

And my wife will approve.

Jamie Jenkins is director of policy at Royal London