A] Prelude*
* For more general and detailed information about UK pension system and plans and pension plans in general, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/uk-expat-pensions
https://expatpensionholland.nl/global-pillars-systems
The new pensions minister, Emma Reynolds, will have to address the key challenges of adequacy, sustainability and intergenerational fairness facing the industry and the millions of savers across the UK as a priority, says Hymans Robertson. The leading pensions and financial services consultancy also says, it would like to see the new government deliver on the key pensions’ initiatives that are underway as the firm lays out its pensions policy wish list.
Commenting on the need for rapid action from the new Pensions Minister, Calum Cooper, Head of Pensions Policy Innovation, Hymans Robertson says: “Pensions should provide financial independence in later life however long someone lives. Yet this will only be sustainable if the new pensions minister recognizes the need to develop opportunities for the young to save while at the same time continue to provide decent pensions for the elderly.
It’s simply not sustainable right now and that needs to be fixed. If pensions are viewed as an exchange of gifts between generations where in turn for an adequate pension, older generations leave behind jobs and opportunities, it’s clear that this ‘gift’ is getting smaller.
“The biggest pension challenge facing UK workers is the rapidly emerging division between those with DB and DC pensions. This is a difference between older generations with generous DB pensions and younger generations who have DC pensions that, at current rates of saving, will provide insufficient retirement incomes for most people.
Current workers are likely to receive pensions that fail to meet their income needs when they retire and at the same time there is a lack of long-term certainty about the state pension. Which can be seen as a very dangerous combination. ”Emma Reynolds must embrace what’s already underway to help pensions savers – that’s where the rapid action is required – whether that’s finally ensuring the pensions dashboard succeeds or the work to ensure greater contributions through Auto Enrolment (AE).
It’s important for them to recognize and utilize the collective industry wisdom that’s been pooled through many pensions consultations over the last few years and drive action forward.” About Calum Cooper’s pensions priority list for Emma Reynolds: An independent pensions review.
We are fully supportive of the new Government’s planned pensions review which is needed to create meaningful change that will last a generation. An independently led review, with cross party support, would give us the best chance developing a UK pensions system to be proud of.
B] Improve pensions equity
There’s an incredible 35% gender pensions gap to close. We believe that the introduction of Auto Enrolment (AE) credits during work absence due to carer responsibilities can help fill this gap. Of course this is expensive but there seems no valid alternative. We’d also like to see employers mandated to disclose their gender pension savings gaps to promote equitable pension provision.
C] Let existing DB thrive
With almost 200 open schemes TPR’s statutory objectives must be reprioritized to ensure improved pensions for current workers. Support for open schemes would give employers and the pension industry confidence to innovate options that require longer term productive investment and deliver better retirement incomes for millions.
D] Empower DB to create value
The £100bns of surplus capital that lies in DB pensions could be used to re-invest in sponsoring employers and improve pensions outcomes for both DB and DC scheme members. And thus help facilitate the required transition from guaranteed DB plans to non guaranteed investment based DC plans.
E] Stimulate Productive Finance
It’s already clear that the new government will be identifying where investment is required to provide the most meaningful stimulus to UK productivity. To support this the pensions industry needs a practical road map and attractive opportunities to do so at the required large scale.
Practical and tangible targets and goals will be vital to engaging for investors. The pension and financial services industries will then mobilize attention where it will have impact aligned with their long-term goals.
F] Stimulate CDC innovation & pooling
According to some analysis, risk sharing options like CDC might increase an expected pension by over 10% for the same cost. We’d like the new government to encourage CDC regulations that stimulate a range of retirement risk sharing designs in DC. These would create a larger pool of assets which can be used to invest productively over longer time horizons alongside providing greater incomes in retirement.
G] Increase Auto Enrolment
For starters improve and expand AE: An average earner with the AE minimum of 8% has only a 33% chance of PLSA’s moderate standard of living, based on our analysis. We’d like to see an increase in contributions to gradually take the AE minimum from 8% to 12% from 2026 through auto escalation of 0.5% p.a.
Also relevant to expand AE to the self-employed. Only 14% of the self-employed save into a pension. Emma Reynolds should find a way to auto-enroll self-employed people into pensions e.g. via HMRC. We must not leave vast swathes of the population behind, especially gig economy workers.
H] Preserve State Pension
We remain supportive of the Triple Lock for now to combat the existing and substantial pensioner poverty. But of course it isn’t sustainable forever. The new government has to set a sustainable target for the state pension to give workers confidence that it will exist when they retire. Then they can plan in a correct way for what they need to save additionally.
I] Finally
All these changes and improvements can only succeed if communicated in a correct manner. Which, let’s face it, has often not been done in the correct manner. The population does not need pension communication to be ‘complete’ and with all details. Leave that for the specialists.
People need to see the essence of the current situation: Why the current situation is just not sustainable and what are the only options to improve them. If possible with tax facilitation and risk sharing in the long term and especially not leaving out any ‘groups’ like women and the self-employed!