Britain risks a “tsunami of pensioner poverty” over the coming decades unless the system of saving for retirement is overhauled, according to Liz Kendall.
At the launch of a major independent commission on the pensions system, the work and pensions secretary said growing numbers would struggle to make ends meet in old age.
“Unless we act, tomorrow’s pensioners will be poorer than today’s, because people who are saving aren’t saving enough for their retirement, and crucially, because almost half of the working age population isn’t saving anything for their retirement at all,” she said.
The commission echoes the approach taken by Tony Blair’s government to pensions reform in 2002, when an inquiry chaired by Adair Turner led to the system of auto-enrolment.
The commission will be led by a member of Turner’s team, Jeannie Drake, with former Barclays UK chair, Sir Ian Cheshire, and the economist Nick Pearce also on board
It will consult the Confederation of British Industry and the Trades Union Congress, with the aim of building a consensus, which Kendall said she hoped would win the support of opposition parties.
The proposals could include lowering the age at which auto-enrolment into workplace pensions starts – now 22 – and raising contribution rates, now set at 8%.
It will also look at the idea of “sidecar savings”, which are advocated by the Resolution Foundation thinktank whose former chair, Torsten Bell, is a pensions minister. This approach would allow a set amount of pension savings to be accessed as a rainy-day fund in emergencies.
Kendall confirmed that she was also launching the regular statutory review of the state pensions age. It is set at 66 but is already expected to rise to 67 between 2026 and 2028.
Kendall made clear that the costly triple lock pensions guarantee will not be considered by the commission, which is set to report in 2027. “The triple lock is out of scope,” she said.
The independent Office for Budget Responsibility has warned about the much higher than expected costs of the triple lock, which uprates the state pension in line with inflation or wages, or by 2.5%, whichever is higher.
Questioned after her speech at a south London community centre, Kendall acknowledged the role in pensioner poverty of high housing costs after retirement.
“My big worry is, so many young people have not even got a hope in hell of getting on the housing ladder, they’re being absolutely killed by their rent, and if you are paying off your mortgage in retirement, or still renting in retirement, that is what is driving this sort of tsunami of pensioner poverty that is coming our way,” she said.
The commission will not be asked to look at housing policy but Kendall pointed to other Labour policies in this area, including increasing housebuilding.
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Bell, who attended the event, was asked about the prospects for reform of pensions tax relief, as higher rate taxpayers receive it at 40%.
Cutting this to the basic rate, or reducing the size of the lump sum pensioners can withdraw from their savings pot tax-free, have been mooted as money-saving measures in the run-up to the autumn budget.
Bell said: “Tax changes are not in scope for this review. But the tax system obviously is important, and we have a system of pension tax relief costing about £70bn a year that does provide strong incentives for saving and that’s a good thing.”
Business groups gave the launch of the commission a cautious welcome but warned about the risks of piling more costs on employers by raising their contribution rate.
Kate Nicholls, who chairs UK Hospitality and attended the launch, said: “We’ve already seen the unintended consequences increasing business costs, like employer national insurance contributions, has had on the employment market, costing jobs. It’s therefore crucial the commission embarks on a partnership approach with business and consumer groups to reach the right balance.”
Kendall also alluded in her speech to Labour’s U-turn on cuts to disability benefits, insisting the government would continue to advocate change.
She said: “Reforming the welfare state is never easy, and always contested. Let’s be honest, the last few weeks have made that pretty clear – while the path of reform is inevitably bumpy, it cannot be avoided.”
