These actions include the recent postponement of automatic enrolment for smaller employers and the lack of any meaningful progress towards establishing a universal and higher state pension.
Both of these developments have huge knock-on effects that could turn current reform into a ‘train crash’ with disastrous consequences for Britons retiring in the future.
Automatic enrolment into suitably high quality pension was due to start next year, with employers of all sizes participating within a short period.
However, the Government issued a press release on 28th November 2011 announcing that businesses employing less than 50 people would now not be included in automatic enrolment until May 2015, and unless legislation is changed, this will also delay kick-off for those working for larger businesses employing up to 3,000 people.
In addition to the direct impact on the millions of employees that will now not enjoy the benefits of automatic enrolment until considerably later, this change has an enormous impact on the economic viability of the Government’s default pension, called ‘NEST’.
NEST is committed to paying for itself from the charges it levies on employers and members. With such a large section of the potential audience now not arriving for another 4 years, there are now serious doubts that NEST will ever be able to repay its advances from the taxpayer, and will become a tax burden in its own right.
This development also undermines the Government’s prior commitment to the private sector pension industry that NEST will compete on equal terms.
Of far great significance though is the big further delay that this development creates in when millions of people will start saving for their retirement, with dire consequences for the retirement income they will receive.
Beyond this, although Pensions Minister, Steve Webb, has stated and restated his desire to replace the hugely complex and heavily means tested current State pension with a universal higher State pension for all, all the signs are that this crucial reform might be headed for the political ‘long grass’.
There are significant challenges to making this reform happen of course, including the impact on Public Sector Defined Benefit Pensions, but these are small compared to the impact of leaving the State pension system as it is.
This is because the whole automatic enrolment reform would be undermined by the continuation of the current level of means testing in the current State pension system, creating a situation where it is pointless for many of the target audience to save, as they will simply be eroding the state benefits they would have received if they had not saved.
As it is impossible to know at outset whether someone would be affected by this situation or not, the Government risks orchestrating the largest pensions mis-selling scandal the UK has ever seen through automatically enrolling millions of people into a scheme that wastes all the contributions they make.
To avoid this, Steve Webb’s stated intentions must be followed through swiftly and decisively. Sadly there is no sign that this will happen anytime soon, if at all.
Chair of CRR, Margaret Snowdon OBE, said:
“Although the direction of travel of Government reform of pensions has been broadly correct and welcomed over a number of years now, a growing lack of commitment to the plan is putting the whole enterprise at risk.
"The nature of what has to change is heavily integrated, so small changes here can cause huge problems elsewhere. Delays to automatic enrolment are far more damaging than their apparent postponement to kick off.
"And the disaster that will be caused by a lack of swift and radical reform of the State pension that underpins everybody’s retirement income perspective cannot be overstated.
"We live in challenging times economically, but tampering with the reform plan to achieve small, short term benefits in other areas is in danger of turning the current pension reform journey into a train crash in slow motion.”
