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Pensions fit for the future

29 March 2010
Two million pensioners will be lifted out of means-tested benefits through a new simpler state pension system and workers will have the opportunity to retire on two-thirds average earnings, thanks to new plans from the National Association of Pension Funds (NAPF).

Launched today, 'Fit for the future – NAPF’s vision for pensions' sets out a blueprint for the UK pension system that builds on the Government’s 2012 reforms and ensures the pensions system will provide people with an adequate retirement income far into the future.

The NAPF’s proposals include:

  • Creating a new simpler state pension, the Foundation Pension, worth £8,000 a year which will lift two million people out of means-testing and give them a pension worth one third of average earnings.
  • Revitalising workplace pensions by developing innovative new pension designs to help employers run schemes and by proposing that, in the near future, consideration be given to increasing the new statutory minimum contribution from 8% to 11%. Doing so would ensure that everyone has the opportunity to receive a workplace pension worth around one third of their former earnings.
  • A permanent independent Retirement Savings Commission should be established to take the politics out of pensions and ensure a long-term and enduring political settlement.

NAPF Chief Executive, Joanne Segars, said:

“Our proposals are designed to create a pension system which is fit for the 21st century.

“They increase the value of the state pension for everyone, radically reduce concerns over means-testing, and increase the value and quality of

workplace pensions.

“The Government’s 2012 reforms are a major step forward and our proposals complete the task.”

Fit for the future – the NAPF’s vision for pensions

The NAPF’s wide ranging proposals tackle a variety of outstanding issues which build on the pension reforms (automatic enrolment, mandatory employer contributions and NEST) due to come into effect from 2012. Workplace pensions remain central to providing people with an adequate retirement income supported by a solid base of pension provision and an improved regulatory environment.

The NAPF’s proposals include:

State pension system – simpler and more adequate.

  • A new state Foundation Pension should be created combining the current basic state pension and state second pension. This would be worth £8,000 a year, give pensioners an additional £25 a week in additional income and take around 2 million pensioners out of means testing. It would provide a solid floor on which to provide workplace pensions.

Workplace pensions - creating scale, sharing and sufficiency.

  • Strong encouragement should be given to creating large, low cost, Super Trusts which would offer benefits to savers and to employers, who will be able to provide access to high quality pension arrangements. The low costs of Super Trusts could add around 30% to the eventual size of someone’s pension.
  • New forms of risk sharing pension schemes for both defined benefit and defined contribution should be developed. For defined benefit schemes this could include permitting employers to offer ‘core DB pensions’ that would not require them to provide spouses pensions or inflation proofing. Such schemes would give scheme members the certainty of a guaranteed level of benefit without the risks of DC and give employers more certainty over the cost of the scheme.
  • The mandatory level of contributions required from employers and employees from 2012 will improve people’s prospects. However, there is scope to increase mandatory contributions. This would ensure that the overarching objective of the pension system – to provide people with an inadequate income in retirement – is achieved.

Regulation - the right regulator with the right objectives.

  • A single regulator for pensions would provide clarity to scheme members and sponsors alike (responsibility for stakeholder pensions and group personal pensions would transfer from the FSA). The new regulator must also be the right regulator and have a new statutory objective to ensure the health and longevity of workplace pensions.

Staying on track.

  • The long-term nature of pensions requires a long term and enduring political settlement that commands widespread support. A permanent independent Retirement Savings Commission should be established to ensure that the new pension settlement continues to deliver and command widespread support. It would report to parliament on the state of the nation’s retirement savings and on changes needed to keep on track.

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