The target for contributions into the UK’s auto-enrolment pensions of 8% is not enough, and the new pensions minister Ros Altmann should prepare the ground for raising it, a think-tank with historical links with the governing Conservative party has said.
In a series of published suggestions for Altmann, the Centre for Policy Studies (CPS) said that, in her new role, Altmann should monitor the roll-out of auto-enrolment into workplace pensions, particularly the opt-out rate for small and medium-sized enterprises.
In addition to this, the author of the report, pensions analyst Michael Johnson, said she should “prepare the ground for raising contribution rates, today’s destination of 8% of band earnings being insufficient”.
She should also consider how to bring a form of auto-enrolment to the UK’s self-employed, he said.
High-profile industry figure Altmann was appointed by re-elected prime minister David Cameron as pensions minister at the UK Department for Work & Pensions (DWP), the government announced earlier this week.
She takes the place of outgoing minister Steve Webb, a Liberal Democrat who lost his parliamentary seat in last week’s general election.
The centre said the suggestions focused on encouraging the rebirth of a savings culture, and were all at least cost-neutral from the Treasury’s point of view.
“They would, if sensitively implemented, lead to greater independence and prosperity for individuals in their retirement and greater sustained economic growth for the whole nation,” it said.
Johnson said the new pensions minister should establish a grand vision for saving, encouraging a broad-based savings culture, with the aim of raising the national household savings ratio from 5.9% in the last quarter of 2014 to around 13%, which he said had been the average ratio in the 1980s.
To realise that idea, the new minister should devise a strategy that includes various principles, including putting simplification, transparency and intergenerational fairness over commercial interests.
Strong fiduciary, trust-based governance is likely to be much more effective than regulation, he added.
Among other suggestions, Johnson said Altmann should try to eliminate the industry’s “profitable inefficiencies and rent-seeking behaviours”, and include Individual Savings Accounts (ISAs – a tax-exempt savings wrapper) in the auto-enrolment legislation.
She should also sort out the small pension pots problem by aggregating stranded savings rather than use the pot-follows-member idea, and encourage auto-enrolment pensions provider NEST and its competitors to develop a collective drawdown capability to let retirees pool their longevity risk, he said.
The CPS repeated its call on the government to combine the 101 Local Government Pension Scheme funds into a single fund with four separate asset allocators in competition with each other.
The CPS was set up in 1974 by Conservatives and free-market advocates Keith Joseph and Margaret Thatcher, though it states it is independent of all political parties.