Pensions World

The good news is that finally we may be getting long term policies to sort out the chaotic UK pension system says Lindsay Tomlinson, NAPF chairman

It is widely agreed that the current pension landscape in the UK is a mess. We have an inadequate basic state pension and a ferociously complicated state pension and benefit system. On top of that is a private pension system in a state of complete flux. Operating in parallel to that private system sits the framework of pension arrangements for public employees. Some elements of this are funded, some unfunded and all are subject to debate, review and change. This is not a pretty picture.

Is there any good news? Thankfully there is. To remedy the problem we need a long term policy for our entire pension system. The good news is that the political classes have recognised this and are seeking to put in place a long term pension policy which will stand the test of time. What are the elements of this policy?

The first element is the painfully constructed Turner consensus. This was arrived at through the actions of the Pensions Commission under the leadership of Lord Turner. The political consensus which he created has withstood both a general election campaign and a change of government. That is some achievement. It has led to agreement on the need to raise state pension ages progressively and to the 2012 settlement. The 2012 reforms are major and include auto-enrolment and the creation of a potentially massive national system of Personal Accounts operating through the National Employment Savings Trust (Nest).

The second element is that the Coalition government has understood the pressing need to simplify the state pension and benefit system. A key component of such a simplification is a more generous basic state pension, along the lines recommended by the National Association of Pension Funds (NAPF), of £140 per week Foundation Pension. This would mesh in to the 2012 reforms and reduce the amount of means testing applying to state benefits. This would significantly reduce the potential for mis-selling claims from those auto-enrolled into Nest or other pension arrangements who might find their pension savings have reduced means tested benefits they were entitled to.

Third, Lord Hutton has now reported with suggestions on future pension benefits for public sector workers. Implementation will not be without its challenges, but we do now have a blueprint for a sustainable set of pension benefits for public employees.

The final piece of the pension policy jigsaw is private sector workplace provision. The incoming government’s Coalition Agreement contains a commitment to reinvigorate occupational pension arrangements. How do we set about doing so? Note that given Lord Hutton’s recommendations that defined benefits should be retained for public employees, doing something to support pensions in the private sector becomes even more important. Having totally different pension frameworks for public and private sector workforces is obviously unsustainable. So something must be done.

Important initiative

Step forward the NAPF with its Workplace Retirement Income Commission. This is an independent body, working under the chairmanship of Lord McFall, with the NAPF providing a secretariat and general support. Its purpose is to consider what can be done to reinvigorate workplace pensions and to seek to create a political consensus around the necessary steps. It is an important initiative which completes the set of political agreements needed to create a revitalised and comprehensive policy around UK pension provision.

In conclusion, our current pension system became a complete mess because of a series of well intentioned but poorly thought through short term fixes. To replace chaos with order we need to establish and stick to long term policies. I am delighted to say that as a nation we do seem to be en route to doing this. Establishing these policies is a major task which will benefit current and future generations of UK citizens. Please do your best to help. The prize is well worth the effort.
lindsay.tomlinson@blackrock.com