The General Election is now just days away. The campaign has certainly been one of the more interesting ones.
But in all the debates, there’s been barely a whisper about one of the biggest, most urgent, challenges Britain faces –that of increasing longevity.
The increase in longevity is alarming. The predicted number of centenarians in Britain is set to double in the next decade to 20,000, and treble in the decade following to 60,000. At the same time, household debt is at record levels of around £1.5 trillion. As many as 13 million people are not saving enough for retirement, with more than nine million saving nothing at all. If we carry on as we are, we face a bleak future.
Some will argue that measures have already been introduced to tackle the problem. And it’s true that the changes to the state pension and the planned introduction of automatic enrolment are a good start. But most of us would agree that a contribution of 8% of band earnings will not achieve a decent income in retirement.
More needs to be done. The question is what? AEGON has published a pensions manifesto – ‘The Pensions Crunch – Proposals for Change’ – which outlines the action we think the next government should take, both immediately, and over the longer term.
The first thing I think the next government needs to do is to stop the constant tinkering with pensions tax relief, first announced last year, to give people certainty. This has been damaging for pension saving, not only affecting the very highest earners, but prompting employers to revise pensions for the whole of their workforce.
Although automatic enrolment is a positive step forward, the current rules may mean employers level down contributions. This can be tackled, starting with sorting out self-certification to make it easier for employers to continue with good pension provision based on basic earnings. We also need to review if changing the parameters to exclude the very lowest earners and people close to retirement would make life easier for employers and help reduce means-testing disincentives.
We need to commission an urgent review into public sector schemes, to bring unfunded liabilities under control.
Over the longer term the UK needs to face up to how we can get more people to save more money. There have been many suggestions for changing pensions tax rules – for example allowing early access or ending compulsory annuitisation. But this seems a piecemeal approach to me. I believe there is a bigger piece of work to be done to get to the root of what makes people save – whether that’s early access or tax incentives or something else – rather than tinkering with the rules to change small things here and there.
As part of this, the next government also needs to rethink the retirement landscape. For many, retirement is no longer fixed on one day, but happens over a period of time. But the tax rules, and advice and support environment haven’t kept up with this change. We need to completely review these areas to develop product solutions and advice to help people make the best use of their financial assets in later life.
Rachel Vahey is head of pensions development at AEGON Scottish Equitable
The forces at play in investment - most obviously, regulatory change, uncertain markets and shifting demographics - are as strong today as they were when Professional Adviser launched its sister magazine Multi-Asset Review in 2017.
Regulator has visited some firms already
Platforms react to Fidelity blocking Income Focus purchases
Chris Hill's letter to Treasury
Cash balance surges