Commission for later life is vital

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.

Although the reforms have been largely positive, the emphasis was on attracting votes as much as stimulating savings

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.

Third, and most seriously, it led to hugely unrealistic expectations from the general public. References to “freedom” and “pension bank accounts” led some people to believe they could take their pension money whenever they wanted, regardless of how old they were and without any obligation to pay tax. This was a direct result of over-positive political messages taking the headlines and overshadowing the reality of having to leave robust consumer protections in place.

Pension earmarking is another example of politics triumphing over reason, although at least it affected fewer people.

Following a ruling that pensions must be included in divorce settlements, a joint report from key representatives of the legal and pension professions – who, after all, would be responsible for implementing the new orders – was completely ignored and a political solution was introduced instead.

Earmarking orders proved extremely difficult to draft and to implement, and did not achieve the “clean break” that is one of the main aims of financial settlements in divorce. Three years later the original recommendations from the joint report were enacted as pension sharing. Since then this option has been largely preferred to earmarking – now re-named ‘attachment’ – which is rarely used.

These contrasting approaches illustrate why legislation affecting later life planning should be non-political, consultative and supported by consistent public communications.

An independent commission for later life would be able to analyse the issues relating to our ageing society in a balanced and unbiased way. There would be less incentive to shirk unwelcome messages, a disinterested consideration of necessary reforms and an informed resistance to change for change sake.

Moreover, such a commission could look at a range of issues affecting people in later life and consider the picture as a whole. Increasing longevity creates pressure on pension savings, but also on the provision of healthcare and need to cater for declining cognition. These are not separate issues, but very much inter-related and overlapping.

The commission could also ensure that interested parties with more in-depth understanding of the practical implications of any proposed changes were involved at an early stage. This would lead to smoother and more effective implementation when change was required, followed by properly thought-out public education messages.

Lastly, if, as is likely, the politicians are reluctant to give up their power over the treatment of pension and later-life issues, they might like to consider the advantages of having someone else to deliver the bad news while they concentrate on the positive stuff.

Fiona Tait is pensions specialist at Royal London