These are:
2. Cost of living crisis
If inflation is not quelled, many more may opt out of pensions savings. The rot has already begun. The Chancellor should encourage employers to pay the employer’s share of auto-enrolment for a strictly limited period for all their workers who opt out.
3. Time for a rise?
The chancellor should set firm dates for phasing in auto-enrolment contribution hikes. The current total of 8 per cent is far too low.
Make a start by levelling up employer contributions from 3 per cent until they match employee contributions at 5 per cent.
Undoubtedly, this adds millions to the nation's wages bill, but should employers be allowed to remain in business if they do not provide adequate pensions for their staff? There has been 10 years of procrastination – at least, set a date for the next step today.
4. The dead hand of pensions tax
Pensions tax works for almost no one, from the lifetime allowance, down to just £1.07mn from £1.5mn (2006-07), to annual allowance, down to £40,000 from a generous £255,000 in 2012.
And the measly money purchase annual allowance of £4,000 prevents those aged over 50 who have dipped into their pension pots during the pandemic from rebuilding them, now they are back in work.
5. Less bang for your buck
Investment returns are expected to be lower in the future, so today’s savers not only have to save more to get the same end result as their parents, but also inflation has made a savage fiscal haircut – so, raise tax limits.
6. Default fund lottery
Nine in 10 workers in UK pensions are enrolled in auto-enrolment default pensions (where they do not have to make a choice of fund).
They face a huge dispersal of investment results and outcome – yet the regulators spend more time focusing on charges and governance than outcomes.
For the saver, it is entirely the luck of the draw which pension scheme the employer chooses. There is not much the typical employee can do about it.
The regulators should shut down the poor-performing default funds and encourage more employers to switch master trusts.
Here advisers could play a big role. All too many employers just think ‘job done’, set and forget, to the detriment of their employees.
7. Public sector pension burden
The public sector pay bill amounted to £233bn in 2021−22, more than one-fifth of total government spending – 33 per cent of what government spends on public services and almost 10 per cent of national income.
As much as 18 per cent of the pay budget goes on employer pension contributions. Most private employees get just 6 per cent according to the Institute of Fiscal studies.
Not only is the public sector pensions bill ballooning out of control but it is unfair that poorer taxpayers often pay heavy taxes towards financing some public sector employees’ retirement. Time to level up?
8. Danger of too many eggs in one basket
Hundreds of old companies' DB pensions are offloaded to just four or five insurers. The collapse of any one could be 10 times worse than the Maxwell or Equitable Life disaster.
