Gregg McClymont, who held the position from October 2011 to May 2015, said economic stagnation has made it impossible for ministers to push through much-needed pension reforms, including increasing contribution levels and making the system more efficient.
Speaking to The i Paper at the Pensions and Lifetime Savings Association conference in Edinburgh, he said: “It’s tough to increase contributions on employers and employees when real wages have not been rising. Employers feel pressed, and certainly individuals feel pressed.”
He warned that while the UK’s auto-enrolment system was a major success, the country was falling behind nations like Australia, where pension savings are invested more efficiently, and employer contributions are significantly higher.
McClymont said his top priority if he were pensions minister – a role held by Torsten Bell – would be to ensure that pension savings “work as hard as possible” for people’s retirement, stressing the importance of investing in the right assets at the right cost, ensuring savers get the “best bang for their buck”.
However, he acknowledged that there are limits to what can be done without a stronger economy.
“The funds which individuals are invested in have significant allocations to things like infrastructure, if you work in that industry. And that’s been very popular over there.
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“But another key lesson is that their pension funds have consolidated, meaning they are bigger, more efficient, and able to invest in significant assets at the right price.”
One of the biggest challenges, he argued, is that UK pension contributions are still too low.
Many experts believe this needs to rise to 12 per cent over time.
McClymont, who is now executive director of public affairs at IFM Investors, said that while such a model is unlikely in the UK, more employer contributions would be necessary in the future.
He said: “My sense is that it’s unlikely that contributions would rise now, but hopefully in this Parliament, you get a sense of where the pathway has been set.”
Another problem he highlighted is the complexity of the UK’s pension system, particularly the proliferation of multiple small pension pots.
One solution is simplifying the UK’s system – something that would make pensions easier to manage and improve outcomes for savers, McClymont said.
While acknowledging that a cash-strapped Government might be tempted to change the rules, he warned against it, saying: “Confidence in the system is really important, and keeping the rules as stable as possible really matters.”
He believes the current Labour leadership understands the importance of stability in pension policy but added: “We do have a Spring Statement coming up. So, I guess we’ll just have to wait and see.”
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