Indeed, generous pension policies can be costly to the Government, and as such, incentives such as the state pension triple lock and pension tax relief come into the firing line whenever public spending comes into question. Throughout the pandemic, these concerns about public spending have been magnified.
This is hardly surprising, given that Covid-19 has caused significant disruption to public life and the economy. With organisations on the brink of collapse and Britons in need of financial support, the Government stepped in with vital support initiatives like the furlough scheme and the Coronavirus Business Interruption Loan Scheme (CBILS). Whilst instrumental to keeping the economy afloat, they have come at a high cost.
In the last financial year, Government borrowing surged to £323.1 billion – the highest annual figure since records began in 1947. As the Government has now shifted focus to repaying the public debt, unfortunately, the affordability of pension policies has once again, been called into question.
Coupled with the recent Department of Work and Pensions (DWP) underpayment scandal, this has created the perfect storm for a crisis of confidence.
Broken promises and lingering uncertainty
The Government’s Spring Budget in 2021 roused concerns initially, as it was announced that the lifetime allowance would be capped at £1,073,100 until 2026. Consequently, people with savings above the threshold would be struck by a larger tax bill – this may have left diligent savers feeling short-changed in retirement.
Although this policy overhaul has not been in effect long, the public have already expressed concern – according to recent research from My Pension Expert, one in nine (11%) Britons said that this has impacted their retirement strategy.
Another significant change in recent months was the Government’s intention to temporarily suspend the state pension triple lock for one year, breaking a manifesto pledge. This decision has come with much criticism, with over half (53%) of the respondents to that same My Pension Expert survey opposing the decision altogether. A further two fifths (39%) claim that it will impact their retirement finances.
These unexpected changes are fuelling uncertainty that more overhauls may be on the way. In the weeks leading up to the Autumn Budget, reports were rife that cuts to pension tax relief or the annual savings allowance were on the way. Although none of these changes came to pass, the Government’s silence on the matter has done little to ease the nerves of pension planners.
The research also highlights that the majority (53%) of people over the age of 40 are worried that the treasury will make further cuts to pension benefits – such as the annual allowance and pension tax relief – over the next twelve months. Almost a fifth (18%) of savers also stated that uncertainty surrounding pension tax relief is having a negative impact on their retirement finances.
But perhaps the most damning finding suggests that an overwhelming majority (87%) of Britons have no confidence in the Government’s handling of pension policy.
Clearly, the Government must take significant action to remedy this and reassure the British public that retirement savers will not be left behind as the UK progresses with its post-Covid recovery.
So, what can be done?
Simplifying complex systems
One suggestion would be to simplify the current system, which currently relies on complex pension legislation and outdated tech, to help those saving for their retirement.
Almost two thirds of over-40s in the UK said that this is a change they would like to see come into effect – perhaps in order to prevent mishaps like the DWP’s underpayment scandal from occurring again. Arguably, the scandal was a result of layer upon layer of convoluted legislation being introduced to the sector in recent years and resulted in tens of thousands of retirees being underpaid by thousands in their state pension. Evidently, mistakes like this can cause significant financial problems for individuals in retirement, so action must be taken urgently.
Another course of action that many individuals are calling for is a Government rethink on the pension freedom age; 37% of Britons would like to see the Government reverse its stance on increasing the age from 55 to 57 in 2028.
Given the demand for change, at the very least, the Government should commit to a thorough review of currently processes and procedures to ensure that its policies are fair and sustainable. Following this, proposal reforms should be presented and debated within the House of Commons, to facilitate practical and sustainable change to benefit savers. Naturally, these changes will not happen overnight, but such action would make for positive progress.
Bringing financial advice to the many
Likewise, more must be done to ensure that Britons are aware of how they can seek advice as and when they require it. It has been interesting to note that despite the disturbance caused to retirement saving throughout the pandemic, that just 12% of Britons aged 40 and over have sought independent financial advice over the past 12 months.
This seems to stem from the public assumption that financial advice is only for the wealthy few. However, this is not the case. Most advisers know that it is well worth seeking the recommendations of an adviser, no matter how much an individual has saved into their pension pot. Doing so could make a significant difference to their retirement savings.
As such, I would like to see the Government doing more to ensure that individuals are better informed about the availability and affordability of financial advice in order to maximise their pension savings. Working with regulatory bodies like the FCA on campaigns to promote awareness, beyond the remit of the Investment Pathways, would make for a good start.
Ultimately, it will take time for the Government to turn around public perception around pension policy – after all, Rome wasn’t built in a day. That said, the Government must ensure that Britons are able to stay on track with their pension goals and save with confidence, despite whatever may be happening in the political realm.