Those calls are well intentioned, but over time means testing bends the pensions framework out of shape.
If we swing back towards greater reliance on means testing in retirement to better target resources on the supposedly more deserving, then it creates incentives not to save. Why save for retirement if doing so just erodes your future means-tested benefits?
Setting an overall adequacy objective for the UK pensions system, spelling out what the combination of the state pension and statutory minimum contributions will achieve, will help resolve both issues.
With an overall objective in place saying that people should be able to achieve a given percentage of pre-retirement earnings from the combination of state and workplace pensions, it will be possible to debate what the right balance is between state pension entitlement and workplace pension saving in a more sophisticated way.
The more we intend to rely on the state pension, the more important generous uprating becomes and the less emphasis we need to place on workplace saving.
And vice versa, desire to control spending on the state pension would create pressure for increasing statutory minimum pension contributions.
Providing a framework will not solve the debate over the relative importance of private saving and state entitlement, but it will highlight the importance of both a coherent system and a stable consensus on what we are trying to do.
For this reason we think the DWP’s moves on AE are welcome and sensible, but they should be the start of a broader conversation about pensions adequacy.
The next step should be to add structure and a framework to the debate that helps make it clearer what the objectives of the pensions system are.
People deserve to know what sort of lifestyle they can expect in retirement from the two main pillars of our pension system – the state pension and AE. Without this we will struggle to maintain the progress we have made over the past decade.
Phil Brown is director of policy at People’s Partnership
