“Since Iain Duncan Smith left the role after six years in March 2016, we have seen a string of politicians try and fail to hold onto the coveted cabinet role of work and pensions secretary, so it is pleasing to at least see some consistency with Amber Rudd staying on in Boris Johnson’s new look cabinet.
“Rudd has not had much time to implement anything particularly meaningful since taking the reins. However, in some ways this is a good thing as the DWP is responsible for long-term savings policy and it’s simply impossible for the public to have faith in any enacted policy when the leadership of the department chops and changes so frequently. The only hope is that Rudd stays for more than one calendar year.
“The pressing problems she was presented with when she took over still persist and more have been added since then, giving her a substantial to-do list. Given Rudd has an expanded role we hope the workload isn't too much and important long term savings initiatives fall by the wayside. Pensions policy need to remain a priority.
State pension forecast
“High on that list will be trying to fix the calamitous revelation last month that around 400,000 people have been issued incorrect state pension forecasts online stating that they’ll be given a higher amount than they’re actually entitled to. This is a major issue for individuals planning their retirement finances. Uncertainty about what state pension they’ll receive could leave them with a shortfall when they retire, putting additional pressure on their private pension savings.
“While Rudd has made some progress with the pension dashboard there is still an awfully long way to go with this project. For the dashboard to become a reality she must grab the bull by the horns and run with it for more than a just a few months, as making this a reality will take a huge amount of engagement from both the public and private sector, which won’t happen overnight. Guy Opperman, the parliamentary under secretary for pensions, has been heavily involved in the development of the dashboard and it would be helpful if he were to stay.
“Similarly, the impending ramifications of Brexit will mean that Rudd won’t have long to put together a long term plan for state pension indexing for expats living in Europe. At present the government has committed to uprate across the EU in 2019 to 2020, however, has made no promises after that point.
“Another political hot potato that she will need to handle is the whole net pay issue, which punishes pension savers with lower earnings. The DWP’s auto-enrolment review recognises that some lower paid pension savers are missing out on tax relief, which is the key incentive behind retirement saving. The anomaly in the system occurs where employees qualify for auto-enrolment, but don’t currently earn over the personal allowance and therefore don’t pay income tax. This discrepancy means that those on the lowest earnings are missing out on a crucial savings boost when they are arguably the group most in need of the extra top-up to their contributions.
“This problem occurs in so-called ‘net pay’ schemes, where contributions are paid before any tax is taken. While this means that basic and higher rate tax payers therefore get the 20% or 40% tax break they are entitled to on pension contributions, those below the income tax threshold will not receive any tax relief. The alternative system, ‘relief at source’ involves scheme claiming tax relief on post-tax contributions, allowing them to claim relief at 20% on behalf of those earning less than the tax free personal allowance currently set at £12,500.
“Last but not least is the issue of millions of the self-employed who are potentially missing out on building a pension. This was an issue the Conservative government pledged to address in its 2017 manifesto and it’s crucial that it does not fall off the agenda as the nature of employment changes. Auto-enrolment has been hugely effective at getting employed people saving for the future but now we need a national savings strategy that focuses on coverage across the whole population. The workforce is changing around us, with more people moving into flexible, part-time work and self-employment. Policy needs to keep up with those choosing to go it themselves.”