Is it a time for radical pensions change?
On the Money Marketing website yesterday, I called for radical and far reaching change to the pensions system in the UK.
Successive Governments have made a real mess of the UK pensions system which used to be quite simply the best in Western Europe.
The changes that the current Government are proposing seem to be “tinkering at the edges” and this is likely to have the unintended consequences of making things worse not better.
It is a time for radical change to simplify and modernise the system and give the UK consumer the certainty around retirement planning that they deserve.
My package of recommendations (it has to come as a package and not piecemeal) is as follows:
-Introduce a Basic State pension of £10,000 per year for those with a National Insurance contribution record of 30 years. Make this pension available at age 66. Index this pension in line with CPI.
-Abolish the State Second Pension for future accrual.
-Abolish contracting out for all schemes and have just one rate of NI contributions regardless of membership of pension scheme or not.
-Remove RPI linking of public sector schemes and replace with CPI indexation.
-Pay for the above by removing tax relief for all contributions to pension arrangements.
-Allow access to pension funds and benefits that have been accumulated but take a tax charge (30%) for those who do so. Have them sign a “social contract” so that they cannot later come back and claim State benefits if they use their pension fund unwisely and run out of money.
-Abolish all the rules and regulations surrounding pensions such as the Standard Lifetime Allowance and annual contribution limits.
Those who want to retire before age 66 or who need more than £10,000 that they will get from the State will have to save to achieve that.
There will be those who argue against the abolition of tax relief claiming that tax relief encourages savings but I would argue that this is inefficient and simply is not working.
The cost of the above would need to be calculated (I don’t work for the Treasury) but it seems that taken as a package this is likely to be cost neutral or possibly even raises current revenue to the Government.
But don’t hold your breath! Politicians are fearful creatures and don’t like wholesale or radical change even when it is in the interests of the majority of consumers.
What changes do you think the Government should introduce?