CPS calls for rapid increase of private pension age

The Centre for Policy Studies has published a set of suggestions for new Pensions Minister Ros Altmann, which include the rapid increase of the private pension age.

Pensions analyst Michael Johnson suggests increasing the private pension age to 60 by 2024, rising every two years, starting in 2016. The age is currently 55 and is scheduled to rise to 57 in 2028.

Johnson also urged Altmann to continue with the “bold reforms that her predecessor began”. He believes his suggestions focus on encouraging the rebirth of a savings culture and if sensitively implemented, will lead to both a greater independence and prosperity for individuals in their retirement.

He has suggested Altmann try to encourage a broad-based savings culture, with the aim of raising the nations’ household savings ratio from 5.9 per cent to the 1980’s average of 13 per cent.

Johnson called for a strategy that puts the saver first with a robust, fiduciary, trust-based form of governance over regulation, as regulation “rarely engenders trust between consumers and the industry”.

Talbot and Muir head of technical Claire Trott agreed with Johnson’s vision of encouraging a broad-based savings culture but fundamentally disagreed with increasing the private pension age.

“Increasing the private pension age will not built trust between the industry and consumers which is such a major barrier to long term saving within a pension,” she said.

The CPS also called for the elimination of the industry’s profitable inefficiencies and rent-seeking behaviours.

Furthermore, it asked Altmann to monitor the roll-out of auto-enrolment into workplace pensions, focusing on SME opt-out rates. It said ISAs should be included in the auto-enrolment legislation.

The suggestions advised Altmann to scrap pot-follows-member in favour of aggregation and establish value for money benchmarks.

She should also encourage Nest and its competitors to develop a collective drawdown capability to enable retirees to pool their longevity risk. In addition, she should establish a not-for-profit national annuities auction house to automate the process of shopping around, adding to pricing tension and transparency.

The think-tank also made suggestions for the Treasury, which would help pensions. These included, simplifying the tax framework to combine National Insurance and Income Tax, schedule the end of the triple lock state pension increase to end in 2020, to be replaced by CPI.

Johnson suggested replacing today’s tax relief framework for pensions contributions with a simple 50p per £1 saved, up to an annual allowance of £8,000, paid irrespective of taxpaying status. In addition, he would cap total combined annual ISA and pensions contributions at £30,000 and scrap the lifetime allowance.

Finally, he would map a course to pure DC for public service pensions and combine the 101 disparate LGPS funds into a single fund with four separate, competing asset allocators.

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