Hymans Robertson proposes ‘cost-neutral’ overhaul of pensions
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The consulting firm has published a policy paper outlining reforms it claims would improve pensions incomes by 50% while saving employers £14.2bn a year and bringing £28.5bn a year for the Treasury. The changes could also fund a £1tn wealth fund over the next 10 years, it claims.
In ‘The Untapped Potential of Pensions’, Hymans says £100bn a year could be made for the UK by the government and employers through its proposals. They include a flat-rate pensions tax ‘top up’, phasing out the triple lock and raising auto-enrolment contributions, among others.
In combination, this could create a £1tn UK National Wealth Fund, as well as fund the UK’s net zero transition and enable GDP growth of 3%, the paper argues. In addition, Hymans says it would enable improving auto-enrolment and pensions for the self-employed.
“The promised second phase of the Pensions Review presents an opportunity to make lasting changes to give people financial independence in later life for as long as they live. But it’s also an opportunity to meet other important aims, such as improving equity, unlocking tens of billions of pounds annually and investing in UK economic growth at a huge scale,” said Calum Cooper, head of pension policy innovation. “This is a once-in-a-generation opportunity to align pensions policy with national prosperity.”
Cooper admitted that the proposals “would be a huge job for the pensions industry to implement” but warned of the risks of inaction.
The paper’s key proposals are:
- replace traditional tax relief with a flat-rate government 'top-up bonus', and making all retirement income tax-free, bringing forward £22bn a year in revenue;
- regulatory reform on DB surplus release to generate £3bn a year in tax receipts and channel over £400bn into productive UK assets;
- incentivise the adoption of collective defined contribution schemes by giving employers a 1% reduction in minimum contributions, saving them £1.2bn a year and the Treasury £500m a year, as well as potentially set up a public whole-of-life CDC provider through the Pension Protection Fund;
- phase out the triple lock once the state pension reaches the minimum retirement levels advocated by the Pensions and Lifetime Savings Association, saving the government £3bn a year from the late 2030s;
- invest in UK productive finance and growth assets, with a national wealth fund targeting £3 of private investment for every £1 of public money, with capital raised from private sector DB, DC schemes, the Local Government Pension Scheme and others;
- gradually increase minimum auto-enrolment contributions from 8% to 12% with a ‘sidecar’ savings account and removing the £10,000 earnings threshold, while allowing pension pots to be used as collateral for first-time property purchases – the Financial Conduct Authority’s chief executive, Nikhil Rathi, recently said the latter could be included in an upcoming discussion on the mortgage market;
- set a default pension provider for self-employed workers and extend auto-enrolment and ‘sidecar’ savings to them, potentially through self-assessment tax returns.
What do you think about these proposals?
