Fixing the retirement crisis means tackling public sector pensions

Times

4 days ago

The lights on the UK's pensions dashboard are flashing red, again. The government is not ignoring the issue but, for reasons I will come to, that is part of the problem.
Anyone looking for the quick answer to what they should do about the crisis should save as much as you can, preferably in a generous workplace pension. However much you're saving already, it wouldn't hurt to save a bit more.
Why am I so pessimistic? First, because of the economic context in which we find ourselves. The state pension now costs about £135 billion a year and is set to keep rising, thanks to an ageing population and the triple lock, which guarantees increases.
Official public debt (which excludes unfunded public sector pension schemes) is about 100 per cent of GDP, the tax burden is at a 60-year high, growth is stagnating, unemployment is rising, the budget deficit isn't shrinking and the rate that the government pays on its debt is now consistently and significantly higher than it was during the mini-budget, when Liz Truss was alleged by many to have 'crashed the economy'.
The government has demonstrated that it is incapable of cutting the welfare bill, and just about every tax-raising initiative it has tried, from VAT on school fees, to tax on non-doms and raising employers' national insurance has had negative consequences. It is fast running out of road.
When it comes to our retirement then, the government has little room for manoeuvre. Dispiritingly though, where there is wriggle room it has chosen not to use it. As well as the dire economic situation, my other big worry for our pensions is that while the government isn't ignoring the situation, the pensions commission it has launched to review it looks like it is going to be a Potemkin review, giving the semblance of tackling problems while not actually achieving very much.
The government appears to have already put out of reach all the big policy levers which could actually make a difference to the dire trajectory which millions of us are currently set on.
The pensions commission can't opine on the triple lock which, within the next few years, will have added an extra £15 billion to the cost of state pensions. It can't look at pension tax relief, which costs the government approximately £70 billion a year; it can't look at public sector pensions, which now cost about £50 billion a year and which are the cause of the single biggest inequality in our pension system — the disparity between public and private sector retirement provision.
The pensions minister has even told the review not to recommend any increases to auto-enrolment contributions for the duration of this parliament; this is in spite of a widely accepted and supported review in 2017 having already recommended some sensible, modest adjustments to auto-enrolment to boost savings rates.
The commission will no doubt make some useful recommendations about auto-enrolling the self-employed, boosting savings for women and ethnic minorities, and maybe even some long-term increases to auto-enrolment rates for employees. This shouldn't distract us from the big fiscal challenges it appears set to ignore.
The good news about pensions is that we have time on our side; we're talking about making changes today to deliver benefits decades in the future. However, it is also true that because the benefits are so far in the future, the temptation for politicians to make easy short-term decisions in preference to hard long-term choices is almost irresistible. The longer this goes on, the harder will be the eventual reckoning, most probably in the form of a reduced state pension paid at higher ages. Social care, too, is approaching a breaking point and nothing is being done.
For this reason, my advice remains, save as much as you can for yourself and, however much you're saving, maybe save a bit more.
Tom McPhail has nearly 40 years' experience in the pensions industry. He spent 18 years at Hargreaves Lansdown, where he was head of retirement policy