This election campaign has been notable for a disappointing lack of new initiatives to tackle one of the biggest challenges facing developed nations – people living longer. Global ageing is inevitable and is already happening. With medical advances, the baby boomer generation could face a retirement period equal to their working lives and a declining birth rate will see fewer young people to support the ageing population.
Combine this with high levels of pension under-saving and too many people are destined for an impoverished old age. That’s unacceptable and we must start addressing this now.
As the next government takes office, we at Aegon encourage it to take some tough decisions in the first 100 days to overcome the barriers to saving and set us on the right track.
Advisers know a key component in getting clients to save for the future is certainty that the rules won’t change and that valuable tax incentives will be maintained.
It is vital we create the right environment around pensions ahead of the introduction of automatic enrolment in 2012. The Government must therefore immediately issue an unequivocal statement that there will be no further changes to pension tax relief until there has been a full independent review of the savings landscape, including financial incentives to save.
Constant tinkering sends out a message that is heard far beyond the people directly affected. A message that future governments might change their minds on a whim and that next time it could impact on them.
Encouraging people to put money aside now has to be seen as a fair request. The elephant in the room in this respect is unfunded public sector pension liabilities. Is it reasonable to expect private sector workers to save while they and their employers, as taxpayers, foot an ever-increasing bill for generous public sector finalsalary schemes?
I believe there should be an independent review of public sector pensions to develop a set of proposals for bringing unfunded liabilities under control all parties can get behind and support for the long term.
The introduction of automatic enrolment in 2012 will be a significant step in getting more people saving for retirement. But as things stand, it risks imposing an unacceptable burden on many employers, particularly smaller ones. There is also a danger some groups of people will be at high risk of losing out from means-testing in retirement.
Now is the time to review elements of the package to ensure we meet the overall goal of getting more people saving more money for retirement.
Tackling the longevity challenge is not a choice. The incoming government must take action now, not on a piecemeal basis but in a way that achieves cross-party consensus and sets a stable savings framework.