Policymakers must provide firmer, long-term guarantees on the State Pension if they want people to engage meaningfully with retirement planning, says Paul Johnson, director of the Institute for Fiscal Studies.
Speaking at Defaqto’s Unlocking Retirement Strategies conference, Johnson warned that uncertainty around the future of the triple lock and the State Pension age is undermining public trust and making the job of financial advisers more challenging.
“People are genuinely worried that the State Pension won’t be there in 30 years so why would they plan properly? We need the Government to set guarantees,” Johnson said.
Johnson acknowledged that while today’s retirees are relatively well-off, thanks to defined benefit pensions and homeownership, future pensioners face a very different landscape.
Against this backdrop, Johnson is urging the Government to make four key guarantees to help both savers and advisers in retirement planning.
These include ensuring the State Pension level is set to always be relevant to earnings; to protect the State Pension against inflation; to ensure the State Pension will never be means-tested; and to guarantee that State Pension age will only go up with life expectancy increase.
On the role of advisers, Johnson highlighted the current advice gap for those with smaller pension pots but said that is likely to change as pots increase.
“A relatively small fraction of people use advice currently. Many with Defined Contribution have small pots and that’s where advice through better technology and AI can be worthwhile. In the future, even low earners will amass meaningful savings and as pots grow, so will the need for advice,” he explained.
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