The Big Question

What issue do you think should be the new work and pension secretary’s main priority?

Philip Brown is head of retirement products at Partnership

Partnership would encourage all the major parties to support the industry and FSA in initiatives to increase take up of the OMO. In particular, we would ask the Government to sit down with us to develop more innovative approaches to serving the 80% of people who retire with funds below £30,000 (ABI figures Q3 2009) as these individuals are defaulting into poorer rate annuities from their pension provider rather than shopping around. The annuity market should provide good value solutions for all – not just the wealthiest.

Peter Carter is head of product marketing at MetLife

The Conservative/Liberal Democrat coalition has already made a series of welcome announcements in relation to pensions, with the end of compulsory annuitisation at 75 the most beneficial so far.

It has also agreed to restore the earnings link for basic state pensions and committed to establishing an independent commission to review the long-term affordability of public sector pensions.

It sounds like an excellent start although of course we have yet to see the details. The biggest priority has to be reforming public sector pensions to make them affordable and more in line with pension provision in the private sector. That needs to be achieved while also ensuring the State Pension and private savings work more effectively together so that personal retirement saving is incentivised.

Jamie Clark is business development manager at Scottish Life

In one word – ‘certainty’. There are major workplace pension reforms on the agenda, in the shape of employer duties to automatically enrol millions into workplace pension savings. Under current timescales, the start date for these reforms is less than 30 months away, though many employers are under the impression that the reforms may be scrapped by the new Government. The result could be that employers wait until the last minute and then suffer the consequences of failing to plan properly. We need to know as soon as possible whether these reforms are proceeding and, more importantly, when.

Rob Childs is head of operations for pensions and actuarial services at DST

Given that it accounts for some 50% of his budget, I would like to see real reform of State Pension made a priority. We have been tinkering for years with an over complex system that makes planning for retirement difficult and does not deliver an income that sustains. With the good ship NEST on the horizon, can we really expect those that can least afford to put their money into a scheme that essentially reduces the amount of means tested benefits they will receive in retirement? As a supporter of the aims of NEST, I think its arrival has to be accompanied by reform of the state pension in order to reduce means testing – so that every penny in NEST demonstrably benefits the individual directly by an increased pension benefit.

Matt Connell is government and industry affairs manager at Zurich UK Life

The main priority should be to send a clear, ongoing message to individuals about what they need to do to achieve a comfortable retirement. This means doing three things:

• Setting out the basic level of retirement income that the state will provide over the long term. People can only make decisions about saving when they know the limits of Government involvement.

• Setting clear incentives. If the Government expects people with above average earnings to save for the future it must stand behind incentives to save, including higher rate tax relief.

• Encouraging ongoing education. One-off messages on pension savings are not enough. The Government should provide incentives for employers to provide ongoing financial education for employees.

Andrew Gadd is head of research at the Lighthouse Group

The main priority is to ensure the coalition government’s policy regarding pensions is clear going forward. It would seem at the time of writing that we are likely to see more flexibility and control for pension investors. Both the Conservative and Liberal Democrat parties support the idea of early access to pension funds and at least a partial abolition of compulsory annuitisation. With reference to tax relief on pensions there was a divide between the coalition parties with the Lib Dem manifesto promising a reduction in tax relief to the basic rate for all. Clarification in this crucial area is needed as soon as possible.

John Hanafin is technical consultant at Alexander Forbes Consultants and Actuaries

The first task should be to encourage existing pension provision by ensuring all individuals have tax incentives to save and legislative burdens on employers/trustees are minimised.

An immediate start would be to clear up the anti-forestalling complications so that high earners and employers can concentrate on their businesses in these difficult times. Trustees can then concentrate on other pension matters including 2012 changes. If high earners withdraw from pension schemes in favour of other tax efficient benefits and are the decision makers within the company, they may decide to close the scheme which will disadvantage everybody!

Craig Harrison is wealth management consultant at Creative Benefit Solutions

The new pensions minister, Steve Webb will no doubt be one of the busier men in Whitehall over the coming months, what with NEST and the targeting of tax relief on pensions for higher rate tax payers. However, he needs equally to concentrate his efforts on reforming public sector pensions.

The figures involved in calculating the cost of public sector pensions are truly staggering. The National Audit Office (NAO) put the cost of the bank bailout at approximately £850 billion. This compares favourably to the public sector pensions’ liability which various independent experts place in excess of £1 trillion.

He is unlikely to make any policy decisions before the findings of the ‘public sector pension commission’ are made clear. These are due to be published in summer 2010. Let’s hope that the recommendations offer root and branch reform to bring these in line with private sector pension offerings.

Jonathan Howard is head of corporate clients at Courtiers Investment Services

Given that we have already had announcements on changes to the default and maximum retirement ages, and given that the new government is unlikely to improve the position for higher rate pension savers, the next priority ought to be an overhaul of NEST.

NEST was hurried through by the Labour Party in the final months of power, and it seems clear that the reason key decisions were taken so arbitrarily was that no one in Labour HQ believed they would actually be in power long enough to see the scheme come to fruition. Why else would they accept final bids from just one company or casually sweep aside the argument that it would penalise the poorest members of society?

If the public are to get behind the new scheme, the means-tested benefit issue needs to be addressed, and we must be assured that Tata’s bid was competitive. Let’s also hope the Liberals push on with their plan for a more flexible structure, if only to restore faith that this pension belongs to the people rather than the State.

Steve Latto is head of pensions at Alliance Trust Savings

The main priority has to be to increase public saving into pensions and other savings vehicles. This can, in part, be achieved by increasing the flexibility of pensions, for example, by removing the effective need to purchase an annuity by age 75.

He must also ensure pension rules can be easily understood. The A-Day pension changes failed to deliver the promised simplicity. This was also recently highlighted by the unnecessarily complex changes to higher rate tax relief.

However, these changes will not be sufficient. Auto-enrolment will be required. He needs, as a matter of urgency, to review the proposed plans, with a view to implementing a straight forward system that does not penalise those who save.

John Moret is director of marketing at Suffolk Life

He’s made a good start by appointing Steve Webb as pensions minister. Unfortunately potentially we still have a divide between Treasury and DWP policy on pensions. I believe that gap would best be bridged by appointing a savings ‘czar’ to head an independent savings commission made up of industry experts. I believe the starting point has to be tackling state pensions. Until we have a fairer and less complicated state pension regime we will never solve the ‘pensions crisis’. I am attracted to the ‘citizen’s pension’ concept and Steve Webb is clearly well placed to move this forward.

Nigel Orange is technical support manager (pensions) at Canada Life

I believe the first priority for the new DWP Minister is to radically simplify the state retirement benefit system. The state retirement benefit system has grown in to an unwieldy beast that is too complex for even the experts to understand. With basic state pension (BSP), state second pension (S2P), pension credit, savings credit and a range of other age related benefits to take into account it is not surprising that some 54% of the working population decide to do nothing when it comes to saving for their golden years. To illustrate this ‘The Pensions Service’ publishes a guide to the BSP on their website that runs into a mere 60 pages!

Bob Perkins is technical manager at Origen

In the coalition agreement document, there is a commitment to do away with the default retirement age of 65. Furthermore there is the intention to abolish the requirement for compulsory annuitisation at age 75. It is assumed that these measures will be his top priority and we will need to wait to see what appears in the first Budget speech.

These things apart, there is a need to look at the terms and delivery of the National Employment Savings Trust (NEST). Clearly they do not want to inherit a scheme that fails to deliver and so it remains to be seen how they tinker with it in the next 18 months or so prior to the launch.

Chris Smeaton is head of investments and funds at James Hay

There are a number of priorities that need to be addressed but the most pressing are:

The overriding need for a period of continuity where the rules and regulations can remain unchanged.

Removing disincentives to save into a pension – this should include a simplification of the rules allowing tax relief on pension contributions

Providing clarity around the basis upon which increases in the State Pension will operate.
Clarifying the rules for those reaching age 75 (it seems strange that all the political parties seem to think annuitisation is still compulsory at age 75).

Tom Stevenson is investment director at Fidelity International

Re-think the new flagship NEST scheme charging structure which is just too high and complicated.

The main priority should be to review the last Government’s ill-conceived proposals regarding tapering of tax relief on pension contributions. While we do not argue with the goal of reducing the overall cost of this tax relief and cutting the disproportionate benefit to higher earners, we believe the method used will be cumbersome and costly. We think a better approach than the proposed reduction of relief for incomes above £150,000 is to introduce an annual cap on contributions of, say, £50,000, which would attract tax relief at an individual’s marginal income tax rate. A system based on contributions not incomes would be better targeted, fairer and would set a limit on the amount of tax relief that an individual can enjoy. It would meet the Exchequer’s main objectives without unnecessarily complicating the business of saving for retirement and so discouraging individuals and their employers from making sensible provision.

Mark Stopard is head of marketing at Sun Life Financial of Canada

Iain Duncan Smith’s main priority should be to maintain and foster incentives for long term savings and retirement planning. The retirement landscape has changed irrevocably, following the closure of defined benefit schemes alongside a state pension which does not provide an adequate income on its own.  Consumers are now on their own in accruing their own retirement savings, while making these assets work so they continue to deliver a flexible retirement income that protects against inflation.

Along with keeping the remaining tax incentives for pension saving, the new Secretary of State needs to focus on simplifying the rules to help encourage wider consumer engagement with their retirement plans.  Removing compulsory annuitisation at age 75 could be a start if he follows the principle of making retirement savings simpler not more complex. 

Andrew Tully is senior pensions policy manager at Standard Life

We need to simplify savings in the UK. In the short term, an obvious example is the overly complex tax changes for high earner. A simple, easy to explain option, limiting the amount people can pay into a pension each year would be much more straightforward for all concerned.

Longer-term, we could consider getting rid of all of the artificial differences between savings vehicles such as ISAs, unit trusts, pensions and life insurance savings plans. This would remove a mountain of legislation and allow savings providers to get across the important messages about saving for life events rather than talking about which ‘product’ is best.

Rachel Vahey is head of pension development at Aegon

Iain Duncan Smith has two main immediate priorities. First, to make sure automatic enrolment will work. It’s a good initial step to help the UK meet the longevity challenge, but on its own it’s not enough. If the reforms are to succeed, engaged employers must play a part. The new government needs to go ahead with a review of NEST. The detail of automatic enrolment has to be changed to make it easier for employers, and for a thriving private market to play an active role.

Second, if people are to commit to long-term savings, they need a stable framework. So we need to prevent further changes to tax relief for pensions contributions. Alternatives which work with the existing framework, such as a lower annual allowance, are a better solution. But the government needs to go further and completely review the incentives to save for retirement, by taking into account financial incentives as well as ‘nudges’ to change behaviour.

Adrian Walker is senior manager – retirement planning at Skandia

The minister should make it a priority to clarify whether the Government intends to alter the structure of NEST and auto-enrolment. Before the election the Conservative party spoke openly about how a high-level review of NEST was on their agenda if they came to power, yet to date the coalition mandate has remained silent on this subject. For NEST to be a success there must be a clear indication of how the scheme will be structured. Thought must also be given to the requirement for means testing which will affect the retirement benefit provision for low to low middle income employees. Clarity in these areas will enable the pension industry to work towards the implementation of compulsory pension provision from 2012. It will also enable employers to consider how best to integrate NEST into their own business or whether to set up alternative qualifying pension arrangements for employees.