According to the Financial Times, Rachel Reeves has announced that the adequacy element of the pensions review is going to be put on hold. The rationale is that a review of adequacy could result in pension contribution increases that would force employers to spend “billions of pounds” more on pensions.
The Government is concerned that an increase in contributions would be too difficult for employers to manage on top of tax increases resulting from the recent budget. I imagine the Government’s reasoning here is that putting more pressure on employers harms the job opportunities of workers.
It doesn’t seem that this is sufficient reason to delay the review. Even if the review does find (as it ultimately will) that current contribution levels are insufficient to achieve adequacy in retirement for most pensioners, that doesn’t mean that rises need to be made immediately. Surely the point of the review would be to explore issues around achieving adequacy, i.e. how much can employers, employees and the Government afford to pay?
In Australia, where pension participation by workers is mandatory, but only employers are required to contribute, pensions are seen as deferred salary and it is accepted that increases in employer contributions result in slower wage increases. Employer contributions were phased in over a long period of time, starting at 3% of earnings (or 4% for very large employers) in 1992 and slowly increasing in stages to 9.5% in 2014, and 11.5% today (reaching 12% on 1st July 2025)
Presumably the first step for the UK is to figure out how we measure adequacy, then figure out what we want to aim for, and then decide how best to get there, taking all relevant factors into account. If this means a slow or even delayed rise to contributions then that is something that can be looked at. It takes a long time to lay the legislation anyway, so nothing would be done in a hurry.
So, it does leave one wondering exactly what the rationale for this move is. It also brings into question the timing of the 2017 automatic enrolment review recommendations. The legislation is now in place to allow for the age of automatic enrolment eligibility to be lowered to 18 and for contributions to be made from the first pound of earnings (not on earning above the lower end of a band). These changes will also increase employer costs, so are these to be delayed as well?
Have the review, I say, decide what we are aiming for and how much people should be living off in retirement, and then decide how to get there. Delaying the inquiry altogether is a bit like trying to pretend a problem isn’t there and hoping it will go away. It won’t.
I’ll be blogging about pensioner poverty on Wednesday after I give evidence to the select committee! Stay tuned!
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