John Jory needs no introduction in the world of pensions. As deputy chief executive at B&CE Benefit Schemes for the best part of 15 years, Jory was a key figure in per-haps the biggest stakeholder pension success story. At a time when the UK is embarking on a programme of rolling out a low-cost, basic, mass-market pension, the man behind the growth of the UK’s biggest stakeholder scheme is someone worth listening to.
However, it is not stakeholder, or even Nest, that is occupying Jory’s time and interest at the moment. As director general and one of the founding directors of new pensions thinktank the Centre for Retirement Reform, Jory has bigger issues in his sights.
The CRR has been set up with one aim in mind – to help bring about fundamental reform of the UK pension system. Jory says the CRR is “not trying to be another Pensions Policy Institute”. Instead, the CRR’s goal is to drive forward the argument for sweeping reform of the pension system.
Jory says the CRR was formed out of a realisation that there was a growing consensus that radical reform was needed but no momentum behind it.
He says: “There are so many good ideas that come out but unfortunately so many of them are confined to the long grass and never ever see the light of day.”
Following work done for the Institute of Directors and the publication of its 2009 blueprint for reform, the Roadmap to Retirement, the decision was taken to set up the new organisation.
After his service at B&CE, Jory says he was happy to accept the position as the first director general, particularly as it allows him to keep working in his area of strongest interest – helping to get low and medium earners saving more for their retirement.
If the CRR has one central goal of achieving lasting and large-scale reform of the UK’s pension system, it has three specific aims – a higher basic state pension age, a simple, adequate basic state pension and development of better savings products.
“The purpose of the CRR as a thinktank and as a lobbying body is to progress these three key objectives, to work with the rest of the industry and undertake whatever research is necessary to go to the decision makers, the Treasury and the DWP, with some evidencebased support for these three key objectives.”
State retirement age of 70
Jory says the current retirement age is unsustainable and is now far higher in comparison with life expec-tancy than it was ever intended to be.
The solution, says the CRR, is a move to a state retirement age of 70 and this should be done as soon as possible.
“The reality is that the state pension has not kept pace with increasing longevity,” he says.
The CRR does not have a specific date in mind for this increase but Jory says people’s expectations need to be addressed. “It is just to get people thinking that we probably can’t afford to be thinking about 50 years as a timetable. It is probably going to be 20 or 30 years to get it up to age 70 so it is changing the mindset.”
Unsurprisingly, given his background, Jory says the impact of increasing the state retirement age on manual workers will need to be managed but he believes this is no excuse for avoiding the issue.
“The average retirement age for B&CE is 62 or 63 and this is because they are physically unable to do the job any longer. We can’t ignore manual workers from the equation but at the same time we can’t continue with a state pension age of 65, it is totally unaffordable without significant increases in personal taxation to pay for it.”
He says the answer may be in better investment in occupational health to enable people to keep physically fit for longer or to invest in retraining to allow manual workers to move to less physically demanding jobs. An example he gives is for builders to move into helping run apprenticeship programmes.
“That costs money but then so does people retiring early and relying on state benefits.”
The trade-off for a higher pension age should be a single, understandable state pension set at a far more generous rate than it currently pays and Jory is encouraged by the many different groups who have similar ideas.
’If it was absolutely clear precisely how much you are to get from the state when you retire, that sends a very clear message to individuals’
“The NAPF are also talking about the same thing, they are calling it their Foundation pension and, of course, pensions minister Steve Webb has long gone on about the necessity to reform the state sys-tem, not just since he has been part of the coalition government.”
Jory suggests the state pension could be set as high as £150 to £180 a week but certainly no lower than the £8,000 a year that the NAPF and others are proposing. He argues that the benefits of this approach are not just lifting pensioners out of poverty and the abolition of a very expensive and cumbersome benefits system but that it would encourage saving itself.
He says by allowing people to easily understand exactly what they get in retirement, people will be able to make a decision for themselves whether they want to save or not. “I really do think it is a fundamental issue. If you ask people how much they would get from the state when they retire, they would have no idea. They would know possibly what they would get from the basic state pension but that is only one part of it.”
Jory says the complexity of the state system is compounded by much higher expectations of living standards in retirement but he suggests the two issues could be dealt with very effectively together.
“Lower to moderate earners, just like their mum and dad, they are intending to rely on the state for their income in retirement. Unfortunately, mum and dad did not have to pay £60 a month to Sky, they didn’t have expectations of a foreign holiday, going out for a meal from time to time, treating the grandchildren. Whereas now, people’s expectations, even low to moderate earners, are so much higher but what the state can provide is still a basic level of subsistence. While it might have been fine for mum and dad, it will not be fine for the next generation retiring.
“If it was absolutely clear precisely how much you are going to get from the state when you retire, that sends a very clear message to individuals.”
The CRR intends any reform of the state pension to be self-financing but if pension reform ends up costing more money, then Jury concedes that could be a barrier to speedy reform. “If the Government hasn’t got the money, they can’t do it,” he says.
The final piece of the CRR jigsaw is looking at current savings products. Jory says the success of Isas prove that people are not averse to saving, they just like to understand the product they are saving into and understand when they will be able to get their hands on their savings.
“Isas are so much more popular with people and you do not need to be that intelligent to work out that it is probably to do with control of their money, they can do what they want with it, whenever they want, whereas they can’t do that with pensions.”
Jory suggests the idea proposed by the Centre for Policy Studies to combine Isa and pensions and looking at early access to savings should certainly be given further thought. However, Jory warns about going too far down the route of flexible access.
“We are not supportive of the American 401(k), where you can borrow for a holiday, buy a new car, things like that, that is not what a pension is for. But in the current economic climate, it does not make sense for people to have a pension fund of £20,000 and then being forced out of their homes because they have £5,000 or arrears on their mortgage. We need to do more research in areas like that to see if psychologically it might encourage people if they felt they could get access to their savings.
’Isas are so much more popular with people and you do not need to be that intell-igent to work out that it is probably to do with control of their money’
“Baroness Hollis, among others, has suggested that people have access to their tax-free cash. TFC does not fund retirement, it is used to buy white goods, the oncein-a-lifetime holiday, a new car, so could they have access to their tax-free cash at an earlier time?”
To get further research work carried out on any of these areas, the CRR needs to drum up some support for the organisation and Jory says finding sponsors and members is a priority.
The research programme will kick off in the autumn, with the publication of the CRR’s first piece of research work carried out among the membership of the CRR’s principle sponsor, The Oddfellows.
The research is going to be a comprehensive look at attitudes to retirement and the financing of retirement among a substantial 15,000 sample of people either just approaching or just past retirement age.
Turning to tax relief, Jory suggests that the current system of tax relief is not working as higher-rate taxpayers will save whatever the incentives, they simply look for the most efficient way of doing so.
But at the other end, people either are not aware of tax relief or are not aware of how it works.”The Government gets extremely poor value for money from tax relief. At B&CE, we did some research four or five years ago and half the people did not realise the Government contributed anything to their pension through tax relief.
Jory says a flat-rate tax relief, maybe above the rate of basic-rate income tax, would be a more effective incentive or adopting a cash-matching approach rather than tax relief. However, the fundamental issue for many remains affordability. “The problem with lower earners is that of affordability, they don’t have the spare cash available in the first place.”
On the issue of Nest, Jory is slightly ambiguous. He is enthusiastic on the auto-enrolment but suggests that this may have be extended to full compulsion if it does not work. “I totally support auto-enrolment, It is the right way to go. Let’s try and encourage people to take responsibility for saving for their retirement. If it does not work, we may have to look at compulsion and I would say that then raises the question that if people were compelled to save for retirement, why do you need to have tax relief to encourage them?”
Jory says the Nest project remains flawed, particularly the contribution rules which will end up enrolling the very lowest paid but not take account of anyone’s full salary. Instead, Jury suggests that the threshold of qualifying for Nest should be a basic salary of £10,000 and that contributions be based on all earnings, not the band earnings model currently being designed.
Overall, Jory seems confident of the general consensus that is building for the type of fundamental reform that the CRR is aiming for.
He says the Government is very much in listening mode. “They are prepared to listen to the industry and we would all like more people to save more money for their retirement. The current Government might be more minded to look at more radical solutions.
“Successive governments, both Labour and Conservative, have not really made that sea change that is necessary to get more people, particularly low to moderate earners, saving for their retirement. I think the coalition seem to be more minded to listen.”
Centre for Retirement Reform aims
- The Centre for Retirement Reform was created as a focal point for the work being conducted in the realm of retirement reform and to keep mom-entum for reform of the UK pension system. The three key aims are:
- The state retirement age needs to be raised to 70 as soon as practicable. Sensible transitional arrangements are needed.
- The existing state pension benefits system should be replaced with a simple, universal state pension at or above the current means-tested level – a change that can be self-funding
- A new long-term savings product structure must be developed to replace the current private pen-sion model as it is no longer fit for purpose
- John Jory is a founding director and the first director general of the Centre for Retirement Reform
- He is currently a non-executive director of B&CE Insurance Limited and spent 15 years as deputy chief executive of B&CE Benefit Schemes.
- Jory is also managing director of his own consultancy, John Jory Limited, which specialises in removing the barriers to saving for low to moderate earners