You may not have heard of them yet, but pension dashboards promise to be the next big thing for retirement savers. Just like your mobile banking app, they will allow savers to access all of their pension schemes in one place. They are another example of technology making personal finance more efficient. What’s more, their impact will be tangible. That job you had for six months and can’t find the pension documents for? Dashboards are expected to help recover some of the £20bn that British pensioners are estimated to have lost in unclaimed pension pots.
Despite the welcome news of shiny new dashboards, there is still a long way to go to safeguard Britons’ financial futures. Dashboards will help people who are well on their way to a healthy retirement income. But they are not expected to get people to save more.
This year marks the tenth anniversary of auto-enrolment pensions, a success which saw pension participation rates doubling since they were brought in in 2012. But even this masks an arguably greater and more pressing issue: the disparity between private and public sector pensions. Recent statistics show that public sector workers have on average 249 per cent more added to their pension every year than private sector workers.
How do we go about fixing the problem? Many pension experts have called for the government to raise the contribution rate at which workers are auto-enrolled to 12 per cent from the current 8 per cent. But with a cost of living crisis and rising inflation the government will be wary of automatically diverting more of each worker’ paycheck to savings. Scaling contribution rates will have to happen gradually over the medium-term.
Next, we need to widen the number of people who are eligible for auto-enrolment. New laws, put before parliament, would lower the age of auto-enrolment to 18 from the current age of 22. This is a simple policy move to promote better savings habits at a younger age. Polling suggests it would also be popular with voters.
Then there is the question of tax allowances.
A Conservative government should encourage savings and investment. But the tax relief caps on annual and lifetime pension savings have been the same since 2014 and 2016 respectively. There is no good reason not to allow these allowances to rise with inflation, especially when it’s at the highest level in 40 years.
There is an argument, however, for abolishing the lifetime allowance completely. Why effectively cap people’s savings? Investing in your pension and long term financial stability should be seen as a virtue. By removing the cap the government can encourage people to save and secure greater financial stability.
Some argue that on paper, this looks like a huge tax benefit for the rich. In reality, the wealthiest people are more likely to concentrate investments in assets rather than pensions. Advisers have previously branded the lifetime allowance a “double hurdle” for pension savers and said that it adds more confusion to an already complex system. In the same spirit as dashboards, we should be making pensions less complicated and far more attractive for savers to use. Cutting the red tape of annual allowances would do both.
So yes, let’s do pension dashboards. But let’s also get on with the many other things the government can and should do to get people investing and ensure that they can have a comfortable retirement.