Britons are eagerly awaiting to see what pension reforms will be the new government’s main focus in the coming months.
With a new pensions minister in place, many will be focusing on the impact this will have on their finances and what their key priorities are.
An expert shared some of the challenges Reynolds faces, as well as areas she should review for reform.
The state pension
There has been speculation about the longevity of state pensions. Sir Edward Troup, a former HM Revenue and Customs (HMRC) official who advised shadow chancellor Rachel Reeves, said action needed to be taken on pensions.
Speaking to LBC, Sir Edward says pensioners are “probably having to contribute more” than working-age Britons in some circumstances.
Although officially a benefit, the State Pension is not means tested like other Department for Work and Pensions (DWP) payments, such as Pension Credit.
Helen Morrisey, pensions expert at Hargreaves Lansdowne, said: “We have a ballooning state pension bill and the government must be careful not to overburden an already strained working population.
Emma Reynolds has been appointed as pensions minister.
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“With life expectancy slowing and healthy life expectancy hovering around 63, the government’s hands will be tied when it comes to future increases in the pension age. Ideally, the state pension should be integrated into any review of pension systems, to put it on a long-term sustainable footing that gives people certainty about what they will receive and when.”
Jon Greer, head of pensions policy at wealth manager Quilter, added: “We know from the Labour manifesto that the triple bottom line of public pensions will be maintained. But that system is likely to come under increasing pressure, particularly given the state of public finances and demographic trends.”
“We need a policy that works in the long term and a system of revaluation of public pensions indexed to average incomes would be a fairer option that should make public retirement sustainable for future generations.”
The pension tax system
Labour has pledged not to reintroduce the lifetime benefit, but “more needs to be done” to bring in a simpler system.
A complex system can make it difficult for Britons to plan for their long-term retirement.
Morrisey said: “A comprehensive review must look at the system as a whole and ensure that people are properly incentivised to save without fear of being discouraged by subsequent tax changes.”
Workplace Retirement Plans
Developing a lifetime pension proposal could help address the problem of lost pensions.
By allowing people to keep the pension provider of their choice throughout their career, they will be able to track all their money.
Retirement Planning for the Self-Employed
Reforms to the Lifetime ISA (LISA) could be particularly helpful, not least because early withdrawal could mean people lose their free government bonus and savings.
Savers can pay up to £4,000 a year into a LISA and benefit from a 25% government bonus.
Currently, there is a 25% exit option if people withdraw from the fund early, which can be useful for the self-employed during periods when their income fluctuates.
She warned, however: “The problem is that the 25% penalty for withdrawal not only wipes out the government bonus, but also part of your savings.”
Pension fund investment in UK companies
Encouraging investment in pensions in the UK could boost the economy.
In her first speech as Chancellor, Rachel Reeves said: “Boosting investment in British businesses can deliver better returns for people’s pensions.”
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Tim Middleton, PMI’s director of policy and external affairs, said: “There is still much to do. It is clear that our members want to see reforms introduced by the new government. Some proposals could be implemented in the short term, but others would involve major changes that would take years to implement.”
“The most obvious changes that are being requested are to the automatic enrolment scheme. We look forward to meeting with the new Pensions Minister to discuss these proposals.
“We are confident that Emma Reynolds will rise to the exciting challenge of her new role and confirm that we would be delighted to offer her our support.”
