Pensions Talks Interview: Helen Morrisey, Head of Retirement Analysis at Hargreaves Lansdown

Helen Morrisey, Head of Retirement Analysis at Hargreaves Lansdown gives her thoughts and views on the Labour government’s pension review call for evidence,  speculative pension changes in the Budget, including tax-free lump sum and pension tax relief, and the need for auto-enrolment reforms to boost retirement savings. Helen also addresses the gap between current pension savings and what is required for a moderate retirement lifestyle, offering tips for those beginning their pension savings journey.

The Labour government pension review was formally launched last month aiming to “boost investment, increase saver returns and tackle waste in the pensions system.” The first stage of the pension review’s ‘call for evidence’ focuses on DC schemes and local government schemes. Some of the key questions here focus on consolidation of schemes and incentives. Do you think there is a case for establishing additional incentives or requirements aimed at raising the portfolio allocations of DC and LGPS funds to UK assets or particular UK asset classes?

Incentives could work to help drive up investment in particular areas but there are other issues at play that need to be considered first. A key one will be how the Value for Money framework drives behaviours – for instance would the fear of receiving a dreaded amber warning put many schemes off investing in these assets whether that be on a cost basis or for fear of a period of underperformance. This is something that would need to be addressed.

There has been a lot of speculation around the Budget mostly around tax hikes, what pension changes are we expected to see in the Budget?

There have been so many rumours in recent weeks. Key ones include a potential move to a flat rate of tax relief – say around 30% as well as a reduction to the amount of tax-free cash people can take. Others outline ideas around getting employers paying national insurance on pension contributions as well as the potential to make pensions subject to inheritance tax. It’s important to say that these are only rumours and none may come to pass as all would be extremely unpopular and difficult to execute.

A couple of areas of speculation is whether Rachel Reeves could reassess how much people can take out of their retirement pot as a tax-free pension lump sum and possible changes will be made to pension tax relief with the introduction of a flat rate. How will this affect pension savers?

If we moved to a flat rate of tax relief of 30% then this would be good news for basic rate taxpayers who would see that £100 contribution to their pension only costing £70 rather than £80. However, it would not be good news for those on higher and additional rate tax who currently enjoy tax relief at 40% and 45% and this could lead to them contributing less. Any move to restrict tax free cash would be extremely unpopular and could upend people’s financial plans – for instance if they planned to use their tax-free cash to repay their mortgage. If such a change happened we would likely need to see transitional arrangements come into effect to protect those who had already built up an entitlement in excess of any limit.

Another area of interest is auto-enrolment.  The IFS called for a more targeted approach to automatic enrolment as part of the pensions review, as millions of employees are on track for an inadequate retirement income. What more can the government and industry do to help to boost retirement savings?

The implementation of the 2017 auto-enrolment review reforms would boost people’s pensions by allowing people to start saving from the age of 18 and contribute from the first pound of earnings. This would help people with multiple jobs who may have missed out on auto-enrolment to get involved. However, there is also scope to look at how employers can be incentivised to boost their own contributions as this could have a huge impact. For instance, analysis from HL’s Savings and Resilience Barometer highlighted the potential for employers to boost their contributions for those employees who were boosting theirs.

The importance of understanding how much to save for retirement has been increasingly talked about. We’ve seen research after research papers reveal that there is a significant gap between current pension savings and the amount estimated to be required for a moderate lifestyle in retirement. How much is needed for a moderate lifestyle in retirement? And what tips would you recommend for someone starting to save into a pension?

The answer to how much you need to save depends on your personal circumstances and what you want from retirement. The Pensions and Lifetime Savings Association puts the cost of a moderate retirement at just over £31,000 per year for a single person. However, analysis from HL’s Savings and Resilience Barometer puts the figure at closer to £25,000. You need to take the time to think about what your retirement will look like and how you want to spend your time. Once you’ve done that you can think about how much that might cost. Making sure you’ve kept track of all your pensions will give you a good idea of what you have so far. It might make sense to consolidate them into one but make sure you aren’t missing out on any important benefits like guaranteed annuity rates by doing so. Make use of pension calculators to see if you are on track with your savings – checking in every so often will let you know if there are any gaps to be filled. Take advantage of any wage increases to boost the amount going into your pension and make sure you are making the most of your employer contribution.