Calls for pension reform ramp up ahead of general election

Calls for pension reform are ramping up ahead of Thursday’s general election, with industry experts stressing the need for any incoming government to make fundamental changes to the pension system, rather than "tinkering around the edges".

Whilst the political parties have now published their manifestos, industry experts argued that they provided "very little information" on pension policy, raising concerns that it could be difficult to predict what pension policies will change with any new government.

Ahead of the election on Thursday (4 July), industry experts have therefore been highlighting the key reforms they want to see a new government focusing on.

Labour’s plans for a pensions review have gained particular attention, from both the industry and savers, as PensionBee's research found that 87 per cent of Brits back the party's promise to conduct a comprehensive review of the pensions and retirement savings system.

As part of this reform, PensionBee director of public affairs, Becky O'Connor, emphasised the need to rebuild confidence and trust in the pension system, to encourage consumers to take charge of their financial future.

"There has been a worrying increase in pension transfer times in recent years; our analysis of Origo’s recent Pension Transfer Index uncovered a 17 per cent increase over the last three years, rising from an average of 10.7 days in 2020 to 12.5 days in 2023," O'Connor stated.

"To address this issue, we must move away from self-regulation in the pensions industry and implement a ‘10-day Pension Switch Guarantee’. This timeframe aligns with the independent enforcement already undertaken by the Financial Ombudsman Service."

Adding to this, however, Wesleyan Financial Services technical team lead, Madeleine Dowling, argued that “any incoming government needs to avoid reforming pensions in a way that just means more tinkering around the edges”.

“If the government is going to pursue reform, it should focus on more fundamental changes, with simplification as its guiding principle,” she stated.

“This will help ensure the outcome is both effective and fair to all pension scheme members, and help encourage and facilitate stronger engagement with retirement planning, which can only be a good thing.”

This was echoed by Quantum Advisory partner, Stuart Price, who said: "What we really need is a full review of our pension system as it is clear that the younger generation are not saving enough, which will lead to huge problems in the longer term.

"The only real answer in my opinion is a legislative increase into the minimum contributions required under auto enrolment legislation from say, an 8 per cent total to at least 12 per cent.

"From what I have seen this is not mentioned in any of the political parties’ manifestos, which is disappointing.”

Broader calls for AE reform were also backed by O'Connor, who argued that “with continual doubt cast over the future of the state pension, it’s more important than ever for people to begin saving as early as possible to ensure they don’t face an income shortfall in later life”.

“We hope the new government continues with plans to extend auto-enrolment by scrapping the lower earnings limit for contributions and reducing the enrolment age to 18,” she stated.

“Contributions made earlier in working life can be the most valuable because of the effect of compounding growth.”

This is not the only issue on the list, however, as O’Connor also stressed the need for more detail on how the Mansion House reforms will support the UK’s economic growth plans while providing positive returns for pension savers.

“We hope to get further clarity on how the exposure of people’s pension funds to UK growth opportunities could vary according to how close they are to retirement,” she said.

“This is a crucial consideration for older savers, who typically invest in less risky assets as they approach retirement to protect them from volatility and potentially poorer returns.”

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