Talking head: Pensions commentator Steve Bee compares the current statutory minimum of 8 per cent of pensionable pay to the 17.5 per cent that was calculated in the 1950s as necessary to provide a defined benefit-like income.
They show that, contrary to what the doom-and-gloom merchants predicted, young people are not opting out of pension schemes once auto-enrolled. That is good news and bodes well for the future of not just our pension system, but the future UK economy.
The retirement annuity rules allowed people under the age of 35 to save up to 17.5 per cent of their earnings each year
The reforms, though, do not go far enough as far as I am concerned and I would like to see two changes made.
First, the 8 per cent contribution figure needs to be looked at again. Not right away, but as soon as possible after the phasing of contributions is complete.
When our so-called gold-plated pensions, the private sector defined benefit schemes of the past, were first taking root in the early 1960s there was legislation put in place to allow the self-employed to join that pension revolution too.
The late 1950s saw the advent of individual pension products that were referred to as retirement annuity contracts. These were to allow the self-employed to amass sufficient funds to purchase a retirement income broadly equivalent to two-thirds of their final earnings levels before retirement.
The retirement annuity rules allowed people under the age of 35 to save up to 17.5 per cent of their earnings each year in tax-efficient pensions.
The people who ran our pension system back then knew what they were doing; the 17.5 per cent figure was not plucked out of the air, it was the amount a person would need to save every year from age 16 to 65 to get a gold-plated pension.
That number is about right today if you assume a slightly later retirement age and is more than double the 8 per cent figure that auto-enrolment will eventually deliver.
The retirement annuity legislation set a high benchmark for a good pension. I would like to see the auto-enrolment legislation do the same, perhaps on a voluntary basis, but with additional incentives for employers to contribute between 3 and 6 per cent.
The second addition I would like to see considered would be for the auto-enrolment regime to incorporate a minimum level of compulsory life assurance.
With pension schemes soon to cover all businesses, it seems to me that life assurance could be delivered extremely efficiently without any real risk of selection.
It would give a strong message to all employees, not just those who are eligible for pension scheme membership, that these workplace benefit reforms are worthwhile and important, and working in their best interests.
Steve Bee is CEO and founder at Jargonfree Benefits