GUEST COLUMN:
Stuart Price
Partner and Actuary
Quantum Advisory
When the Pensions Investment Review concluded earlier this year with its final report, ahead of the Pension Schemes Bill being laid before Parliament, the UK Government indicated that the next phase of the Pensions Review would focus directly on the adequacy of pension outcomes.
The adequacy review would explore long-term, systemic challenges around pension inequalities and under-saving, while building on the success of auto-enrolment and the State Pension.
With this review seemingly on the cards, it was on our minds.
As the second Mansion House speech from the Chancellor of the Exchequer Rachel Reeves got ever closer, the pension industry’s speculation about the plans grew.
The annual speech is delivered at the official residence of the City of London’s Lord Mayor to senior figures in the business world, including the banking sector. It’s a crucial moment in the calendar, particularly for finance and pension professionals, as future plans and regulations for these sectors are often announced.
Would auto-enrolment rates be raised in the future? Would they consider increasing pension contributions? Can we expect a firm commitment to the triple lock for the State Pension? Ultimately, what does adequacy and saving success look like? These were some of the questions on pension professionals’ minds as we awaited the speech.
The answers to these did not transpire.
Growth, investment, trade deals and the Financial Services Growth and Competitiveness Strategy dominated the speech, with pensions briefly mentioned part way through.
There was an indication that the Pension Schemes Bill, which is currently in the committee stage in the House of Commons having completed two readings, will be signed into law in the next few months.
Repeating familiar points around consolidation and British investment for those of us in the industry, the Chancellor said:
“The creation of Defined Contribution and Local Government Pension Scheme megafunds will mean larger and more powerful pots of funding invested productively across the country. Pension funds, and this government, are united in our determination to deliver higher returns for savers and more investment in the economy.”
The pensions element of the speech concluded by reiterating the commitment of funds covering the majority of the defined contribution market to the Mansion House Accord, including pledges to invest in private assets such as infrastructure and other projects in the UK to propel growth.
The Mansion House speech left us waiting for more clarity and direction regarding the future of pensions. This came almost a full week later.
On 21 July, the UK Government announced that it was reviving the Pensions Commission, a non-departmental public body who were responsible for simplifying the State Pension system and implementing auto-enrolment, almost 20 years since its final statement in 2006.
It is expected that the new commission will address adequacy issues and the barriers that stop people from saving enough for retirement, with the final report, setting out its long-term recommendations for change, due in 2027.
Two independent reports will also be carried out to assess whether the State Pension Age for future pensioners should be altered due to unaffordability and the rising cost of UK pensions.
Accompanying the announcement of the commission’s revival were some stark statistics and scenarios.
The Government’s analysis suggests that:
• People retiring in 2050 will be worse off than pensioners today
• Nearly 15 million people are under-saving for retirement
• Lower earners, self-employed individuals and some ethnic minorities are particularly at risk
• There is a gender pensions gap in private pension wealth, with women having only half the pension wealth of men
It will be a long wait before we see the recommendations of the commission, how these build upon the proposals of the Pensions Investment Review and Pension Schemes Bill, and when they will be actioned.
While the commission may lay the groundwork for a pension system that supports future pensioners, we can tackle some of the barriers to saving before 2027 by championing financial education for savers at all stages of life.
Financial patterns and habits are largely established by the age of seven. Learning how to manage money from a young age can set individuals up with financial confidence, stability and independence that will benefit them later in life.
A promising start is being made in Wales with the Curriculum for Wales including financial education across areas of learning, but this education shouldn’t just stop at school. It should continue into the workplace so that employees understand the value of their pension contributions, solutions like salary sacrifice and other benefits they could receive to ensure they are saving enough for the future and become less likely to end up within the worrying statistics that the Government has forewarned.
