Time to retire the state pension? by Charles Cotton

Welcome to the CIPD’s Performance and Reward blog, which aims to raise the profile of the reward profession both outside and within HR, promote innovation, highlight latest developments and trends, and to discuss the implications of these for people management and development. Unlike other blogs written by a particular individual, this focuses on a particular topic. Over the coming months, you’ll hear from leading reward practitioners, consultants and academics.
 
Against a backdrop of pension bad news, the CIPD and BlackRock has investigated the business case for workplace pensions in the private sector. Depending on size and resources, the study finds that there is a business case for pensions.
 
However, when it comes to employees it finds worrying levels of: pension understanding; personal responsibility; and appreciation of the value of the company pension. Employers feel that pensions are not flexible enough, either for their own or employees’ needs and that staff would prefer other rewards. The findings suggest that the way forward is for pensions to become more flexible, that they become part of a holistic employer offering and that more needs to be done regarding employee education, support and engagement. And that all the parties, employees, employers, government and the pension industry need to step up to the plate and recognise that we have a problem and that they are part of the solution.
 
Personally, I think more radical action may also be required: it’s time to retire the state pension and associated means-tested benefits. If people know exactly what they’re going to get from the state – nothing – then maybe they would really begin to take responsibility for saving for retirement. No one would then be worse off for saving; the young won’t end up paying more and more in tax to support an increasing elderly population. And perhaps most importantly, employers would find their own investment in the retirement plans of their employees would become much more valued by the employees they are seeking to attract and retain.
 
This couldn’t happen overnight. It would have to be phased, with the current state pension tapering to a point where anyone under the age of 25, say, would be told they will no longer receive anything. The state could then focus on ensuring that individuals have the opportunity to save for their pension and the appropriate regulatory framework. The safety net would be refocused on defining contributions rather than defining retirement benefits. For instance, those unable to work due to family responsibilities or disability could have credits towards their pension, maintaining individual responsibility regardless of circumstance and promoting financial literacy.
 
While I accept that some readers may consider this as too radical, I believe that we need radical ideas to get more people into a pension and higher levels of saving