For most people saving up for later life takes a long time, and yet the rules surrounding pensions are at the mercy of short-term decision-making and political expediency.
This can leave savers confused and uncertain about what benefits they can expect to get and the plans they need to make to achieve financial security.
I believe that the creation of a stable and independent commission for later life would create a more stable environment which would encourage people to save in the knowledge that their savings would not be unexpectedly taxed or restricted just when they needed them.
Let us consider three separate examples of pensions legislation.
Auto-enrolment was the result of an independent pensions commission led by Lord (Adair) Turner in 2004 which was responsible for pointing out some basic and unpalatable truths. Most people did not save enough for their retirement and if nothing was done the majority of people would be poor in retirement. They then suggested three possible solutions:
1 People could work longer
2 People could save more
3 Taxes would have to rise
This report led to a political consensus and recognition that action would have to be taken, regardless of which political party was in power at the time. The result was a series of consultations on how a workable solution could be introduced and on subsequent legislation that could be supported by successive governments.
It has not been perfect – the rules are complicated and present a considerable challenge to smaller employers; however, when the legislation came into force we already had detailed guidance from the regulator for providers, advisers and employers. The result has been the auto-enrolment of more than 20m employees so far.
Pension flexibility, on the other hand, was sprung on the nation in the chancellor’s Budget in 2014 without any consultation with the industry, consumer groups or the regulator.
Although the reforms have been largely positive, the emphasis was on attracting votes as much as stimulating savings. This, and the rushed nature of the implementation have created confusion and mistrust.
First, we were told that no one would ever have to buy an annuity, building on public dislike of the product rather than helping people to understand how and when an annuity is likely to be suitable for them. A less political message would have been to tell people that they will now be able to buy an annuity when it is most advantageous for them to do so.
Second, pension providers were given only 12 months to redesign their products to do something which had never before been possible or planned for. This might seem like a reasonable timescale to politicians – who after all had an election coming up and wanted to see fast results – and many providers did in fact come through. However, the recent confirmation that not all providers were either willing or able to make the changes in time has created more negative stories and distrust of pensions.