KNEE-JERK REFORM TO PENSIONS?

Older workers having to pay National Insurance beyond state pension age is just one of the proposals being put forward by the Resolution Foundation’s Intergenerational Commission.

Others include adjusting the state pension by increasing it and replacing the triple lock, which guarantees at least a 2.5% increase each year, with a double lock, linked to earnings and inflation but with no minimum guaranteed.

There’s also a recommendation to reform pension tax relief to a flat rate of 28% and put a cap on the pension tax-free lump sum at £42,000. This could happen alongside changes to the recent pension freedoms.

Tom McPhail, head of retirement policy at broker Hargreaves Lansdown, reckons this is a very mixed bag of reform proposals.

He says: “Some of this makes a great deal of sense. Given the current Government’s limited capacity to act, very little is likely to be implemented during this parliament.”

He agrees that reform to the state pension is inevitable and increasing the base amount followed by a switch to a double lock makes a lot of sense.

However, he believes that capping tax-free lump sums at £42,000 would undermine confidence in pensions.

“If you promise people something and then don’t deliver, they end up not trusting you,” he says.

It is the same with reforming pension freedoms. If you take them away it will upset a lot of investors, and rightly so.

McPhail’s view is pension freedoms are working pretty well. He says: “This isn’t the moment to launch panic corrective measures to problems which exist largely in the imagination of a small group of policy theorists who still haven’t come to terms with letting investors have control of their own money.

“The Resolution proposal of what are effectively deferred annuities is great in theory except no one currently offers such products, and the reason is no one wants to buy one.”