Darren Philp: Still more to do on pensions reforms

What can be done to encourage people to save for their pensions?

The Government recently announced changes to auto-enrolment pensions, which will help people across Yorkshire and the rest of the UK to save more for their future. The scheme will now cover younger workers and  will ensure that every penny of someone’s pay packet counts towards their pension, but there is still more to do.

Almost one in ten workers in Yorkshire and the Humber is self-employed, yet they still aren’t covered by auto-enrolment. Fewer self-employed people are saving into a pension, leaving them unlikely to build up the money they’ll need in retirement. It’s vital that they are included in the scheme as soon as possible to help as many people as possible save for a retirement they deserve.

While the Government has proposed a number of improvements to auto-enrolment, we can’t forget that  part-time workers are still at an unacceptably high risk of not having enough money to live on once they’ve finished work.

At the moment, if you earn £10,000 from one job you will be auto-enrolled into a pension scheme, but if you  earn the same amount from several part-time jobs, you won’t. This disproportionately affects women, and just doesn’t make sense. It’s a serious equality issue which still needs to be tackled.

The time has also come to look long and hard at pensions tax relief, which is effectively a government top-up to your pension contributions, and is one of the best benefits of a workplace pension. The current system disadvantages lower earners and is so unclear that most people simply aren’t aware of the benefit they’re getting and aren’t incentivised to save.

At the moment, the amount of tax-relief – or size of the top-up you get – depends on how much you earn.  Higher-income taxpayers receive more than a basic ratepayer from the government for every £1 they save into a pension.

At a time when half of adults in the North of England think they won’t have enough money to maintain their desired lifestyle once they’ve retired, this no longer seems the most sensible or fairest way to encourage people to save for retirement.

Despite more than eight in ten taxpayers being basic-rate payers, only a third of tax relief will be spent on them in 2018. Setting a flat rate of 25-30 per cent would level the playing field and encourage lower earners to save more while continuing to incentivise higher-tax earners to contribute to their pension.

People now change jobs far more often, with the average person ending up with 11 or more pension pots in their lifetime.

The Government is working to introduce a ‘pensions dashboard’ – an online tool that displays the details of all of someone’s pension savings.  This has the potential to revolutionise the way in which we engage with our pensions by answering the simple questions of how much they’ve saved and where their savings are.

But the dashboard can only reach its full potential if people can see all of their pension pots – including their state pension – and this means compulsion.

Having a pensions dashboard – where you can see your various pension pots in once place – underpinned by legislation will help people to better understand their savings and plan  ahead to ensure they have enough money for the retirement they deserve.

Darren Philp is Director of Policy and Market Engagement at The People’s Pension.