The Pensions Policy Institute (PPI) has released a report urging the UK government to be bold in its changes to the pensions system. The government will publish its proposals for pension reform later in the year, having examined already the options put forward by the Pensions Commission.
The PPI report brings together the views of around 80 pensions experts from over 40 organizations who, throughout the last 12 months, responded to detailed papers on the critical aspects of pension policy.
The aim was to build up a consensus on what a long-term pension solution could look like. This initiative confirmed the case for change and that change has to start with the state pension, the PPI said in a statement.
There is no doubt that every pension expert wants to see change in state pensions, said Alison O’Connell, director of the PPI. For most pension experts, a better state pension means: a structure that people can understand, providing full benefits to a wider range of individuals and a high enough level of benefit so that means-testing for basic income is reduced.
Saving for retirement becomes so much clearer if the role of the state winds back from the current complexity of basic state pension, earnings related state second pension, pension credit and contracting-out to deliver instead a single state pension that provides basic income as simply as possible, the PPI says.
If the state delivers better on that basic task, the means-testing trap is avoided and so private saving stands a better chance of success. Most pension experts believe that the state should also play a role in promoting saving through tax incentives. Auto-enrolment into savings schemes could help, Ms O’Connell says.
Most people agree with the Pensions Commission’s broad construct of more generous state pension with wider coverage, limiting the growth of means-testing, and anticipating that people will generally work longer.
But many pension experts would go further. This project suggests that as the government prepares its white paper it should be bolder than the Pensions Commission’s proposals, she adds.
The PPI has come up with a range of proposals outlining how government should approach reform. It should:
– aim to reduce the current extent of means-testing, rather than trying just to stop the spread of means-testing.
– move quickly to a simple, flat-rate state pension, probably a single tier, rather than keep an element of earnings-related benefit in the second state pension for decades.
– find a new, fairer way of giving tax incentives for saving, rather than keeping the current method.
The PPI report also examines the calls for some kind of standing pensions commission. It concludes that while regular independent review of pension policy could be a good thing, it may not necessarily make policy more stable. Many experts believe that the best way to ensure stability is to have the simplest possible – and therefore most transparent – state pension.