TUC’s nine step pension plan
06 December 2017
The Trades Union Congress (TUC) has suggested nine steps that should be taken to achieve a better pensions system, including scrapping the auto enrolment earnings trigger and reducing the starting age for contributions.
Some of the steps are small short-term improvements, and others the TUC say, could take time to have an impact but would make a major difference to the lives of future retirees.
- Abolish the earnings trigger with employer contributions paid from the first pound of earnings to bring low earners into the system and remove any incentive there is for employers to keep wages below the trigger level. A more effective way of bringing those with multiple jobs into the system than seeking an arrangement to determine which employers might be responsible for contributions
- Scrap the complicated qualifying earnings system to levy contributions on the entirety of a worker’s pay packet which would simplify administration and boost saving
- Reduce the starting age for contributions so that those who enter the workforce rather than pursuing higher education are not at a disadvantage. Starting to save earlier makes it more likely that an individual has sufficient pension for retirement and a lower starting age could simplify administration for employers
- Set out a route map for raised contributions as even when minimum pension contributions rise to 8 per cent from 2019, this will be inadequate for a decent retirement. It is estimated that two thirds of those enrolled in pensions in 2030 will be on minimum contributions. The TUC support the stance that pension contributions should be at least 15 per cent of salary; 10 per cent from an employer and five per cent from the wage packet of an employee
- Maintain open defined benefit schemes as more than 90 per cent of people currently accruing benefits in DB schemes are likely to have a decent standard of living in retirement
- Greater cost transparency to lead to reduced charges – for example a one per cent annual charge will consume nearly a quarter of a saver’s pension pot over their working life. Fund managers need to disclose the full range of costs and charges to pension schemes
- Greater consolidation to justify whether the current size and scale of a pension scheme is sufficient to produce good value for members
- Move to Collective Defined Contribution pensions which are like traditional defined benefit pensions without a promise and without an employer guarantee
- Establish retirement default pathways to give savers a better chance of good outcomes – it should be the role of government and regulators to ensure that all savers have access to a default retirement pathway
The review of automatic enrolment is due to be published shortly and speculation is weighing heavily on reducing the starting age for contributions and raising the levels of contributions in the future. Watch out for a summary of the review in our news pages to find out what changes lie in store for the pensions arena.
Visit the TUC's website to read the full article on the pensions lottery: nine steps to a more secure future