The Centre for Policy Studies today welcomed the final report by MPs on the Work and Pensions Committee into pensions freedom and choice. It is heavily influenced by a series of landmark papers on pension reform written by Michael Johnson, Research Fellow at the CPS.
Three distinct recommendations stand out:
1. A new “default” pathway for pension pot decumulation.
This replicates Part 1 of Michael’s proposals for “auto protection”, as presented to the Work and Pensions Committee on 13 April 2016; the introduction of “auto-drawdown” at private pension age, in the form of an income drawdown default. This was subsequently detailed in "Auto-protection", and outlined to the Treasury Select Committee on 14 November 2017.
As for the design of the default, challenges remain, and robust governance arrangements will be required. In addition, the current minimum access age of 55 (57 from 2028) is too early: it should be at least 60 (except in respect of ill health).
2. Recognition that NEST, the Government-backed DC pension scheme, may offer a decumulation product to its members.
Michael has long campaigned for NEST to be allowed to offer a decumulation product, most recently in “A Pensions and Savings Manifesto”. NEST will be delighted by the Committee’s recommendation.
3. A single, public, pensions dashboard, with mandatory data submission.
The 2013 CPS paper "Aggregation is the key" argued against “pot-follows-member” in favour of an aggregating dashboard through which citizens may monitor their savings.
Subsequent CPS papers (notably "The Pensions Dashboard: Vital for UK plc") make the case for a single, public, pension dashboard, along with the need for mandatory data submission. Michael reiterated these points in front of the Work and Pensions Committee, in an evidence session held on 13 April 2016.
The governance arrangements for the dashboard will require careful consideration (including the design of the access protocol, and addressing the question of who owns the data).
Robert Colvile, Director of the Centre for Policy Studies said,
“The Pensions market is in urgent need of reform and this a step in the right direction.
“It’s vital that we incentivise saving for ordinary working people, and update what remains an overcomplicated, outdated system.”
Michael Johnson, Research Fellow at the Centre for Policy Studies said,
“It’s heartening to see a Select Committee in Parliament taking on the industry’s vested interests in such a robust manner. Their recommendations are a victory for common sense, and Frank Field and his colleagues should be congratulated.
“I hope the Government takes on board the work done by the Committee and simplify what is currently a hideously complicated system.”
For further information, please contact the Centre for Policy Studies Press Office on 07876161196
NOTES TO EDITORS
Michael Johnson is a Research Fellow at the Centre for Policy Studies. He is the author of more than 40 influential pensions-related papers for the Centre for Policy Studies.
His recent report “A Pensions and Savings Manifesto” made many of the policy suggestions contained in this Select Committee report, and more besides.