Chancellor Rachel Reeves is reported to have delayed plans for the next stage of the government’s landmark pension review in a blow for savers and the future of auto-enrolment.
A review into the pensions market was a key manifesto pledge from Labour during the general election campaign.
The Labour government even unveiled a Pension Schemes Bill in the King’s Speech in July which promised a pensions review to “boost growth and make every part of Britain better off”.
Sign up to Money Morning
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Reeves has already outlined plans to merge 86 local government pension schemes to create megafunds that back infrastructure projects and the next phase was due to address issues with auto-enrolment and to help get more people saving from retirement.
But now the chancellor is rumoured to have postponed the plans “indefinitely,” according to the Financial Times, to avoid any further pressure on business who are already facing higher national insurance contributions.
Yvonne Braun, director of long-term savings policy at the Association of British Insurers, said: “The government’s landmark pension review is critical not just to address scale and how pensions are invested, it must also address the UK’s pension savings crisis, the state pension age, and consumer decision making.
“We understand that government can’t put additional pressure on businesses at this time. But a roadmap for the longer term is still sorely needed to prevent pensioner poverty in the future, and to chart a clear path which gives businesses and individuals the certainty to plan.”
The Treasury has been asked for comment.
What is the pensions review?
Labour came to power promising to overhaul the pensions system.
The first stage was revealed in the chancellor’s Mansion House speech, with plans to use pension megafunds to unlock around £80 billion of investment for infrastructure projects and new businesses.
The second stage was due to focus on retirement adequacy, and analysts had hoped it would set a clear timetable for scaling up automatic enrolment minimum contributions and boosting retirement saving among the self-employed.
But the Treasury is now concerned that increasing contributions would add more burden for businesses.
“We had expected this to include the implementation of the 2017 review of auto-enrolment recommendations, such as reducing the minimum age from 22 to 18, and removing the £6,240 annual salary offset so pension contributions are made from the first pound earned,” says Kate Smith, head of pensions at Aegon.
“Additionally, a timetable for phasing in higher mandated contributions from 8% to 12% of earnings over the next decade was anticipated.”
‘A threat to people’s financial future’
Several reports show that people aren’t saving enough for retirement. Hargreaves Lansdown data shows that almost a fifth of people (19%) don’t even know how much they and their employer are putting into their pension each month. This figure rises to one-third among over-55s.
Separate research published by Scottish Widows over the summer shows that almost 30% of people have no idea of their retirement needs.
Smith warns that the political will to address this is “fast evaporating”.
“We fully understand that the government needs to consider trade-offs, but delaying the second phase of the pension review risks damaging many people’s financial futures,” she adds.
Tom Selby, director of public policy at AJ Bell, warns that delaying addressing the challenge of pensions adequacy means millions of Brits will be at greater risk of facing a crisis when they reach retirement
He added: “Savers also face perpetual uncertainty over the way pensions are taxed, with the latest Budget demonstrating the damage fears over potential cuts to retirement savings incentives can have on both consumer behaviour and trust in pensions.
“It is for exactly this reason that AJ Bell is campaigning for a ‘Pensions Tax Lock’ – a commitment from government not to alter tax relief or tax-free cash entitlements over the long term. If plans to address adequacy are being kicked into the long grass, providing a bit of certainty about pensions taxation feels like the bare minimum the government should do to reassure people.”
He added that there may never be an easy time to scale up auto-enrolment, but pushing those difficult decisions back will simply store up problems for the future.
“Labour now needs to come clean on exactly how it plans to tackle pensions adequacy, which remains one of the most pressing issues facing society and is a potential ticking time bomb if left unaddressed,” adds Selby.