The industry has five years to undertake "radical reform" or face heavy-handed government intervention, a researcher warns.
Centre for Policy Studies research fellow Michael Johnson will release a paper next week with 104 proposals to improve the pensions industry, which he describes as “a shambles of deeply entrenched vested interests”.
Johnson said the industry is in the “last chance saloon” of public opinion and must drive change that catalyses a savings culture in the UK or face the introduction of compulsion when auto-enrolment is reviewed in 2017.
He said: “The report is saying to the industry: you have a five-year window and that’s it. You are going to have to transform yourselves in the next five years or the government is going to come crushing down on you.
“If there has been no major improvement in the nation’s savings propensity, which is what auto-enrolment is intended to achieve, the government is going to be looking very seriously at compulsion.”
Johnson warned the introduction of AE could coincide with rising interest rates, static earnings and increasing mortgage payments, making it more likely that people will opt out.
He said under these circumstances the government would have to step in to protect public finances and business investment from a savings collapse.
Two of the report’s specific proposals, seen by IFAonline's sister title Professional Pensions, include the industry working collaboratively to establish a defined contribution pension pot consolidation service and a mandatory annuities clearing house to replace the Open Market Option.
The report has been reviewed by two Conservative peers, two Labour peers, a former president of the Institute of Actuaries and a former industry chief executive.
It will also argue for cash incentives for employers who persuade employees to increase their pension contributions above NEST’s 4% of band earnings, the reinstatement of the 10p tax rebate on dividends and the replacement of the 25% tax-free lump sum with a pre-annuitisation “reward” of 5% of pot assets, funded by scrapping higher-rate tax relief.
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