Pensions Minister Richard Harrington has warned it would cost too much to arrange a compromise with the Women Against State Pension Inequality (WASPI) group – and called on MoneySavingExpert.com to help spread the word on pension planning.
In a hard-hitting interview with MSE ahead of the recent WASPI protest, Harrington – who took on the Department for Work and Pensions (DWP) post last summer – pulled no punches on the need for individuals to take planning for retirement into their own hands.
In particular, he was keen for MSE to help get the word out to those starting off in the world of work that simply relying on minimum contributions via the workplace automatic enrolment scheme could leave you short in the long run.
During the interview at the Houses of Parliament over a pot of tea and a fruit loaf – a mouthful of the snack had to be consumed, at the minister's insistence, before our talk – Harrington explained why he believes most savers should be aiming for a £250,000 pension pot by the time they retire. For many, though, reaching that rather daunting target won't be a piece of cake.
His answers will engage some and enrage others, but ultimately there's no getting away from the fact you'll need to start thinking carefully about your pension sooner rather than later.
Check out our Guide to Taking Your Pension for full info on what to expect.
With WASPI showing no signs of giving up its campaign for redress, what would it take for you to change your mind on offering extra support to 1950s women caught out by the state pension age changes?
"The Government's done the compromise, which it did in the big Pensions Bill that went through in 2011. And there was a concession that was made at the time which cost more than £1 billion, which basically reduced the amount of time people had to wait [for their pension] and I'm afraid that's it.
"Look, the one thing I can say in defence is that I don't give people straws to clutch on to. It's billions of pounds to sort it out and we can't do anything about it."
You've said you want to see the average person retire with a £250,000 savings pot. What's this based on?
"That's a back of the envelope job. At the moment the average salary is about £28,000/year and it's generally accepted that people want to retire on about 60% or 65% of their salary because typically they've paid their mortgages off and their children have left home. So crudely, that's about £18,000.
"The state pension today is about £8,000, meaning the gap's £10,000 – so where's the £250,000? It's simply calculated on what you'd need to invest today in a lump sum to bridge that £10,000 gap, of course that's assuming interest rates remain low – it may be completely different in five years."
Is £250,000 a realistic target?
"It's about getting people's minds focused on the need to save. Of course, they don't need to save all that money from their earnings – the taxman and the employer are effectively contributing half of that (via the workplace pensions scheme) and of course there's the investment income rolled up over all the years.
"If people start saving from the age of 20 and they're going to save for say 45 years it seems not unreasonable [to hit the £250,000 mark]. It's not a ridiculous number, it might seem it if you're starting off and you're earning a small amount of money, but if you start contributing the 50 pounds and the 100 pounds now over a period of a lifetime it goes up quickly."
The auto-enrolment minimum contribution will increase in 2019 from 2% (with 1% coming from the employer) to 8% (with 3% coming from the employer) – is there a danger savers will rely on the minimum pay-in?
"I hope not, although the answer to your question is 'yes, they will'. But this is where I hope MSE will get people thinking about saving more. It's almost a double-your-money proposition because of what you put in is added to the employer's contribution and the tax relief.
"Technology will help us demystify pensions and in the end my hope is that you'll be able to pick up your phone [and use an app the way banking customers do]. That will help with transparency around pensions – but I accept we're a long way from that."
Do you think the minimum contribution of auto-enrolment will increase further in the years ahead?
"I hope so. [Former Pensions Minister] Steve Webb, my illustrious predecessor but one, said he thinks it should be 12%. So much depends on what happens to inflation and index linking and that sort of thing.
"I'm not going to argue for Steve's number or anyone else's number, but people will see it should rise because it's the best deal for them. But I would be naive not to say that people in their 20s have got other priorities than to save the maximum that they can [towards their pension]."
On the flipside, are you worried that more people could opt out once the minimum contribution increases in 2019?
"Yes, and that's why we need to sell it to more and more people that it's a very good thing. I hope the opt-out rate will remain low. Looking at New Zealand, where they have a similar system to ours where people can opt out, there's no evidence, apart for a short-term blip, that dropout rates have increased as the rate's gone up."
Will self-employed people be able to access an equivalent of the workplace pension scheme?
"This is not Government policy, but it seems to me that, what do all self-employed people have in common? Tax return. So seeing as there's that common bond between them it seems to me not too difficult to say that a self-employed person's equivalent of automatic enrolment could be through their annual tax return.
"We've just announced the [auto-enrolment] review and part of the review is about how to engage people who are not currently involved in the system. It just seems to me that doing it through the tax system would work – I can envisage how it would work. But someone far cleverer than me might come up with another idea."
How important is financial education in terms of the wider pensions debate?
"It's all the things Martin [Lewis, MSE founder] mentions in his programme – it's bank accounts, it's how to get a mortgage, it's how to borrow responsibly, and more importantly for me, with pensions, how to save responsibly.
"Literally the day they start work, I'm hoping that every young person will understand about pensions. There's got to be a cultural change in this and the education system without any doubt is part of it.
"The way it's currently explained is like something from Victorian times. The way it's explained in other countries and in more modern products than pensions, for example the LISA, is in a far better, simpler way."
We've heard from people who had pinned their hopes on selling their existing annuities and they feel let down by the decision to scrap plans for a secondary annuities market. What would you say to them?
"I perfectly understand that, because they feel trapped by an annuity, and they feel the Government has done them out of a chance to cash it in.
"But from my point of view, I went round institutions to try and find out who would be offering a market in this, because I have to think of it from a consumer point of view. As far as I could see there were no reputable firms prepared to make a proper and competitive market in this.
"My fear was that it would be left to the kind of people who would ring [consumers] up and say, 'oh, you're getting £10/week on your annuity, it's next to nothing and you're being cheated, we'll give you tomorrow a cheque for £3,000'. That's not what was meant."
You've previously said the Government has to make 'difficult decisions' on the state pension age – are we looking at another increase?
"It's Government policy that 10 years' notice will be given, so nothing will be happening anytime soon. But a lot depends on longevity and things like that.
"It could be [that the state pension age] is not going to change much, on the other hand, if they cure cancer or something huge and we're all going to live to 100 [the state pension age may change] – but in the end Governments need to consider those things. We're genuinely open-minded on it – we don't want to save money, we just want to see what happens."
What do you make of criticism of the recent Green Paper on defined benefit pension plans?
"Criticism is good – it is a discussion document after all – people such as Steve Webb have said it's 'too green', meaning it's too much of a discussion paper, but that's unreasonable because it would be wrong for us to stipulate as it's a very complex issue.
"[Other] criticism has been knee-jerk reaction from some of the press, who've said it's a pensions raid. It's all done to sell newspapers because they're not even telling the public it's a consultation – it's not a pensions raid at all."
What are you doing to clamp down on pension scams?
"There's a lot going on behind the scenes. It's not just us, it's the police, it's the Treasury, it's local authorities – there are lots of people involved in this. We had a consultation that finished recently, where one of the recommendations was banning cold calling.
"We want to get to a position, which I think will be through legislation, where we are saying 'if you get a call from your pension company, it's not legitimate'. [A potential fine] isn't going to put off the hardcore scammers, but it will make people aware that it's not genuine."
And finally, what would you say to those who claim you lack the experience to be Pensions Minister?
"I was asked by Theresa May to be at the DWP and then I asked for pensions. The reason I asked for pensions is because I felt that my 30 years of being in business employing quite a lot of people, I had some feeling for it.
"I have full respect for [former Pensions Minister] Ros Altmann, I have full respect for Steve Webb – I cannot claim that type of expertise. But I have got a lot of experiences that are relevant and I'm surrounded by people that are pensions experts.
"The thing about pensions is that everyone's got different views. We have to sit there and listen to consumer interest groups, Treasury groups and all sorts of other groups who have all got their different views. We have to arbitrate between them and it's sometimes difficult to do, but you don't have to be an expert to do that."