Cross-party consensus needed for next stage of pensions reform, Fabian Society and Bright Blue urge
With the government due to report on its review of automatic enrolment this month, sparking fresh debate about workplace pensions, a new report brings together politicians from across the political divide and leading thinkers to set out ideas for the next stage of workplace pension reform.
Bright Blue and the Fabian Society, representing the intellectual right and left, have come together with this publication to find common ground and practical policies on pressing problems facing workplace pensions.
Pensions minister Guy Opperman MP, shadow pensions minister Alex Cunningham MP, Frances O’Grady from the TUC and Neil Carberry from the CBI are joined by key policy experts in a report published today by Bright Blue and the Fabian Society, in partnership with The People’s Pension. Together they map out a fresh path for pensions reform in the UK.
Bright Blue director, Ryan Shorthouse said:
“Democratic politics is, at its heart, about finding solutions that compromise between different legitimate interests, values and people in our society. We make the most progress in tackling pressing problems when those from different political and professional backgrounds can shape and agree policies. This has been the case with pensions policy in the past, hence the real progress we’ve seen. We now need a new cross-party consensus for the next stage of pensions reform.”
Fabian Society general secretary, Andrew Harrop said:
“The last decade of pensions reforms have been a success because they have been built on cross-party consensus. But looking forward there is now no shared roadmap for the next stage of reform. Everyone wants to build a pension system that delivers an adequate and secure income throughout long retirements. The different interest groups and political parties should be confident that they can find common ground on how to achieve that goal.”
Andy Tarrant, head of policy at The People’s Pension, said:
“These essays show there’s scope for common ground across political parties when it comes to the next stages of pension reform. Although the right and left suggest different ways of tackling issues, they can be, and should be, seen as complementary to each other, rather than contradictory.
“A repeatedly raised issue is the difficulties people face in making decisions surrounding their pension pot and how to manage it. Better engagement tools like the pension dashboard – a one stop shop for people’s personal pension information – and default at-retirement products based on the idea of inertia, should not be seen as in opposition to each other. Instead they are both required to serve the needs of different people, now that workplace pensions serve the entire nation.”
Key contributions in Saving for the Future:
Pensions minister, Guy Opperman MP, says automatic enrolment has been a great success, greatly expanding the number of people saving for a pension. But more reform is needed.
“We also recognise that the long-term success of automatic enrolment can only be sustained if people continue to understand the benefits of saving.
“But it is evident that our work is not yet complete. That’s why we are now carrying out a review of automatic enrolment, looking at ways in which we can improve and enhance pensions saving, and help today’s workers to enjoy a more secure later life.”
Shadow pensions minister, Alex Cunningham MP, argues that workplace pensions need tougher regulation to ensure the majority of savers are getting a good deal.
Cunningham recommends that providers operate at scale to minimise costs and maximise returns; reform governance to ensure the returns to scale go to the workers rather than to financial intermediaries; bring everyone within the scope of automatic enrolment; introduce new collective defined contribution schemes that protect savers from investment risk; and update legislation to ensure that defined contribution schemes have to declare transaction costs to employers and members.
“Big schemes have market power and we must ensure that it is used for the benefit of those saving into the schemes, not just for the benefit of those supplying them. That is why the governance of schemes matters so much. So when we develop improvements in governance design we should act quickly to spread them across the industry.”
To address the many long-term pensions challenges, Jeremy Cooper, chairman of Retirement Income, argues for a permanent independent pensions commission.
Cooper argues that the proposed new commission should carry out a review into the standard of governance of pension funds and a holistic review of the technological aspects of pensions and whether the benefits of digitalisation and fintech are being fully employed.
“There is something about workplace pensions policy that suggests that it needs to be ‘firewalled’ from electoral politics, short-termism and budget night surprises.”
Without wider participation and higher savings rates, workers risk continuing insecurity when they reach retirement, argues Frances O’Grady, the general secretary of the TUC
O’Grady recommends that we should start employer contributions from the first pound of earnings; bring self-employed workers into the scope of automatic enrolment and introduce large-scale collective defined contribution schemes to cut costs and share risk.
“The self-employed are not yet included within automatic enrolment. Yet savings rates are plunging among the self-employed with barely one in four saving in a pension. And when they do manage to put money aside, it is typically a smaller amount than an employee.”