Stability and Stasis - Pensions Policy 17 Years Since The Pensions Commission
Ahead of his IFoA Conference 2022 pleanry session, "Challenges ahead for pensions and the welfare state", Paul Johnson CBE, Director of the Institute for Fiscal Studies, gives a brief overview of how far pension reform has come since the Pension Commission of the mid-2000s.
Adair Turner’s final Pensions Commission report was published back in 2005. It was one of the most influential independent reports in recent history. Few reports on any topic have been so influential. Rising state pension ages, the indexation of state pensions in line with earnings (now through the triple lock), and auto-enrolment all came about in large part as a result of his work and that of his fellow commissioners.
These changes have been effective and successful in their own terms. Rising state pension ages seem largely to be accepted. The basic state pension has become a more serious base on which to build private provision. And auto enrolment has brought more people into pension saving than even its most optimistic proponents imagined.
We have now reached a period of stability, even stasis, in pension policy. But the world today is much different to that envisaged by Turner back in the mid-2000s. Policy needs to adapt to economic and fiscal realities, as well as to changes in other government policy. After the financial crisis real interest rates have been consistently negative, now hugely so, making saving far harder. That has hastened ever further the demise of defined benefit occupational pensions. It has also pushed up house prices and helped lead to a slump in home ownership. Ultra-low interest rates were also one of the push factors behind pension freedoms. The annuitisation of pension pots that Turner envisaged will not happen. High inflation has now reared its ugly, and frightening, head. Meanwhile self-employment has burgeoned, and of course the self employed are not covered by auto enrolment.
For decades pension policy has lagged behind economic reality. Increases in pension age came only after the huge increases in longevity seen in the 30 years up to 2010. DB pensions were allowed to die – nobody planned their demise. The current generation of pensioners over saved, in the sense of being better off in retirement than they were during working life. Economic realities have once again overtaken policy, and that policy needs urgent re-examination. Without it we risk stumbling into a new era of pensioner inequality, insecurity and poverty.
You can hear more from Paul on pensions reform and where next for the welfare state by registering for the IFoA Conference 2022.