At our conference in July we published "Challenges of a Changing World" our analysis of some of the trends which will affect the insurance industry over the next few decades. We also launched a debate with our membership and other stakeholders to start to wrestle with what some of the answers to these challenges might be.
Today we held a discussion here at the ABI with leading players from insurance companies and organisations involved in pension policy and practice in the first of our Join the Debate events to share new ideas about how to address the pensions challenge.
Many of you will already be aware of the focus the industry has had on the current programme of reform - supporting automatic enrolment, launching our Retirement Choices Code to make sure all savers are told about how important it is to shop around for an annuity as they approach retirement. We have also just published all our members annuity rates on our website so that people can see the difference shopping around can make to their income. The time is right for us all to start asking questions about the way people turn their savings into a retirement income and how it could work better. We will be saying more about this over the coming months.
I think the industry is making real progress in tackling historic issues so that people can save with confidence - charges are falling, transparency is increasing, there is greater scrutiny on investment decisions and savers are being given much more support and information about how to turn their savings into an income when they reach retirement.
But it can't all be about the here and now - the culture change we need will take years to achieve. While we focus on today we mustn't lose sight of tomorrow and the challenge of chronic under-saving in a future where people will live longer with fewer working age people to support them.
One year on from automatic enrolment, with millions more people starting saving, we need to think about the next big idea which can help us embed this savings revolution in a way which helps people save more for longer.
The pensions industry has historically supported the current system of pension tax relief, and tax incentives are vital to encourage people to lock their savings away in a pension. However, now we feel the time is right to ask whether taxpayer's money is really working as hard as it could to help and encourage as many people as possible to save. The current system does some good things such as preventing people being double taxed, but the industry believes it is right to ask if the current system is as effective as it could be.
There are some interesting ideas about how the pensions tax system could change already out there - from a single rate of tax relief to matched funding or changes in lifetime allowances. We want politicians and others to get involved in a frank debate about the changes that could be made to see if there can be cross party support for reform.
It is not for the industry to make decisions about what is fair, but we have been giving some thought to how to make it more effective and we are keen to participate in the debate. Whatever possible solutions are debated, we believe they should have these 5 principles integrated from the start
- Be fairer, simpler and easier for customers to understand. The more working people who can benefit, the better.
- Encourage people, particularly people on low to middle incomes, to save more.
- Be straightforward to implement, including for employers and the industry.
- Command cross-party support as a stable long-term settlement which can last a minimum of two Parliaments from implementation.
- Demonstrate good value for money to the Exchequer by being revenue neutral or lower cost than the current system, without being at the expense of people's overall savings.
Our current system no longer meets these principles. It is time to reform it. The pensions and long-term savings industry is now a partner in that reform: let's start the debate now in earnest non how to build a better system for the future that gets Britain saving.