First of all, we need to consider the adequacy of savings levels for people’s retirement. There is widespread consensus that 8 per cent of a band of earnings will be insufficient, but there is no plan to change this.
The 2017 changes – removing the lower earnings limit and reducing the age from 22 to 18 – is a starting point, but the real question is how to increase the headline savings rate. This will materially improve retirement outcomes for people, over time.
Secondly, we need to set out a more strategic plan for long-term pension investments and the role they play in driving economic growth.
There is widespread agreement on the principles, but we will not get pension schemes increasing investment in the UK on purely patriotic grounds. We need to ensure first and foremost that there is a benefit for savers, then consider a longer-term plan to incentivise change.
And, of course, increasing contribution rates will increase the investment capital available.
Thirdly, there is the role of the state. The triple lock was never designed as an indefinite guarantee, nor that it would be annually reviewed. There should be a target for the level of state pension provided, perhaps as a proportion of average salary, with a view that this be maintained once achieved.
And any government will want to continually consider the role of pensions tax incentives, not least because the cost is significant. The idea of ‘deferred taxation’ is still a sound principle, but there are elements of the system that have become overly complicated and may benefit from simplification.
However, any changes that questioned the suitability of a pension for a higher rate taxpayer would risk undermining the central principle of AE: that it is right for almost everyone.
In any event, taking a step back and sorting out a meal plan before we start making the shopping list will be a welcome return to longer-term planning.
And my wife will approve.
Jamie Jenkins is director of policy at Royal London
