A wink or a nudge for savers?

A view on the Treasury Select Committee’s ‘Household Finances Report’

Here’s some good news about pensions. People are becoming more confident that their income in retirement will give them the standard of living they are hoping for.

Latest official figures from the ONS show that 54% are confident about their future retirement incomes, a number that has risen from 40% back in the 2010-12 period before the excitement of auto-enrolment and pension “freedom and choice”.

Most people also see paying into an employer pension as the safest way to save for retirement with 40% choosing this option alongside 13% who said paying into a personal pension, compared to 29% who chose investing in property, and 7% who said saving into an ISA. 

Something is working well although it may not appear that way to anyone reading through the thoughts of the MPs on the Treasury Committee who last month released its report Household finances: saving and debt which found no shortage of areas of concern in pensions.

The report supports the introduction of mid-life MOTs to help people get to grips with their finances at a key time in life and wants the Financial Conduct Authority to consider the case for a “strong” form of independent and impartial pension guidance, where people will have to actively opt-out of an appointment with the future Single Financial Guidance Body (SFGB) if they want to access their pension pot without guidance, in order to nudge people towards better information before accessing their pension money.

It has more worries about whether those auto-enrolled into pensions are saving enough, particularly given the possible future impact of the abandonment of the State Pension “triple lock”. It says there is an urgent need to bring self-employed and gig economy workers into the auto-enrolment system, and is concerned about under-saving, in particular by women.

The report called for the Lifetime ISA to be abolished for being too complex and unpopular, the lifetime allowance to be replaced by a lower annual allowance, and more focus on boosting people’s understanding of tax relief as a bonus or additional contribution to pension saving.

The contrast of the ONS statistics and the observations of the Household Finances report illustrate neatly how pensions policy is always a case of walking a fine line between how much people are left to their own devices and given freedom (sometimes to make mistakes) and how far they should be compelled or shepherded to act in what is perceived as the “right” direction for them and society.

Ultimately the aim must be to give more people confidence that when they give up work the income they need to maintain a decent standard of living will still keep flowing. That means helping them make decisions throughout their working life to achieve that goal.