Two of the big things on the pension calendar for 2017 are John Cridland’s review of the state pension age and the review of auto enrolment. I like to think that the two reviews are linked in a linear way.

We need to know what our default target is (the state pension age) in order to work out how much money we need to retire and, for many, auto enrolment is the first step on the pension ladder. These are two tools that the Government can use to balance the books financially and socially. Let’s have a look at how.

With today’s ageing society, the Government should be factoring in an increased number of people in receipt of a state pension who are not paying Income Tax. At the same time, they also need to consider the fact that there will be fewer workers paying Income Tax.

So we have something of a conundrum – we will need to pay out more pension money but will have less coming in! Where will the excess come from?

By no means a new approach but nevertheless vital; the Government needs to encourage people to increase their pension contributions whilst also increasing compulsory contribution levels. Neither the Government nor future retirees can afford to rely on a state pension, and the initial success of auto enrolment just goes to show what can be achieved with pension policy and education.

However, it needs to go further. The current contribution structure is low and if we want contributors to achieve a reasonable replacement income then we must raise compulsory contribution levels and show people how much they will actually need to contribute to achieve a happily funded pension.

It’s common knowledge in the industry that 8% – the minimum contribution level set to come into force from 2019 – is not enough to guarantee a comfortable retirement. Let’s educate people so that they can do something about this.

The state pension age is also an important factor in social engineering. The press tells us we must all consider working until age 70 (at least) and even later for some generations.

However, it is important that the Government seeks to balance life expectancy with healthy life expectancy when it comes to pensions – you cannot have a state pension age of 70 if, say, 75% of people do not get to that age without health issues. Take, for example, those people who entered manual jobs at age 16 who will no longer be physically able to do those jobs when they are 60.

I have also noticed talk turning to options that might be more difficult to sell to the public in general.

• Should we be thinking about means testing state benefits?
• Should we even be thinking of taxing people in retirement whose income is over a certain limit? Never a vote winner.

Add in the subject of social care funding and it becomes clear that some big thinking is required.

Do we need to add Brexit considerations to this big thinking? I recently read a piece of research that suggested controls on immigration post-Brexit could add a year and a half to the average person’s working life.

The jobs taken by incomers to this country are often manual or low-paid – for example, jobs in the NHS, social care and farming – but with fewer immigrants coming into the UK and taking on these jobs we will quite simply be short of the man power needed to fill such positions.

The research also pointed out that many immigrants come to this country having already received an education; they then pay taxes and often go home to retire. This line of thinking suggests that the Government coffers currently stand to benefit from higher immigration levels. Without it will we have an even greater pension excess to make up?

Let’s hope that some of these ‘knowns’ and ‘possibilities’ are factored into Government considerations of pension policy this year. People who have happily funded a pension for themselves will undoubtedly be less of a burden on the state.

Mike Morrison
Head of platform technical