The pensions world has been transformed over the past five years.
Over 5m people have now been automatically enrolled into a workplace pension, we are capping the charges that many pension savers face, we are giving people freedom over how to use their pension pots, and from next year we are introducing a new clearer, fairer State Pension.
The final strand of this massive programme of reform is the Pension Schemes Act, which has now completed its journey through Parliament, having received Royal Assent in the past few hours.
This delivers the Coalition Government's pensions pledge to encourage and empower companies to offer high-quality pensions to all employees.
I wouldn't go so far as to say it is mission accomplished, because much work still needs to be done to deliver strong and stable pensions for Britain.
But despite their ambitious and challenging nature, the Coalition pledges we made in May 2010 on pensions have been met.
For today’s older people, the triple lock is protecting their State Pension income, we have ended of the discrimination of the default retirement age, and from April those who are approaching retirement will have unprecedented flexibilities to access their pension pots.
The Pensions Scheme Act will deliver the final part of this ambitious programme and bring about huge benefits for the pensioners of tomorrow, by allowing the market to offer innovative alternatives to the current most dominant types of pension schemes.
The traditional individual defined contribution schemes are less costly to the employer, and can provide good outcomes. But we have found that members want more certainty about what they will receive when they retire than these schemes tend to provide.
Meanwhile, the certainty provided by final salary schemes can be ruinously costly to employers – the reason why so many have closed in recent years.
The defined ambition alternative made possible by this new Act will provide members with some certainty about what the scheme will provide, while collective benefits will pool risk between individuals leading to more stable outcomes. Both models are more affordable to the employer than final salary schemes, while offering the member more than individual defined contribution can.
In time, defined ambition pension schemes may create new opportunities for greater flexibility and choice for members and employers who are saving into private pensions.
These additions to our pension system will provide a clear and sound alternative to the current offering.
Our reforms have achieved a huge amount in the past five years.
- Measures being delivered on charges, governance and transparency will provide additional member protections in defined contribution schemes.
- New freedoms for private pension savers will end the obligation to buy an annuity, thus giving people back control of their financial affairs.
- The triple lock will guarantee today’s pensioners meaningful annual increases from their state pension.
- And the new State Pension being introduced next year will be easier to understand and fairer all round.
The Pension Schemes Act is the final piece in the jigsaw for this Parliament – and the final part of the Coalition Agreement’s pension’s pledge.
So where do we go from here? What is the key challenge for the next government in this area?
Having laid solid structural foundations and changed the public mindset on pension saving, we now need to focus on educating and encouraging people to save more.
I have talked before about a system of automatic escalation where, as people receive pay rises, they’re pension contributions go up in parallel. I believe such a development would be the natural evolution of auto-enrolment, and help get us to where we want to be.
Having spent five years putting the structures in place to enable people to plan for the retirements they want, the next challenge is to help people seize the opportunity to do so. Let’s not stop the momentum now.