The past fortnight has brought two of the most anticipated pensions-related publications in recent memory, in the form of the final report from the Pensions Investment Review and the 114-page Pension Schemes Bill.
But with all the noises surrounding the consolidation of defined contribution (DC) pension schemes and defined benefit surplus release rules, there remains a rumbling of discontent around the industry that the government is yet to properly act on improving pension adequacy.
Steve Webb, partner at LCP and a former pensions minister, expressed disappointment that the Pension Schemes Bill had been published without any measures to improve adequacy.
“With every passing year that this issue goes unaddressed, time is running out for people already well through their working life to have the chance for a decent retirement.”
Steve Webb, LCP
“While there are many worthy measures in the bill, the biggest omission is action to get more money flowing into pensions,” he said.
“The government’s own projections show that more than 12 million people are not saving enough for retirement and yet the first major pensions legislation of the new parliament does nothing to address this ‘elephant in the room’…
“With every passing year that this issue goes unaddressed, time is running out for people already well through their working life to have the chance for a decent retirement.”
Kathryn Fleming, head of defined contribution consulting at Hymans Robertson, said it was crucial that contribution levels were considered.
“Contributions are arguably the largest factor to drive a savers outcome in retirement,” she said. “Addressing how today’s savers can save more, while also remaining financially resilient today, is a problem that needs urgent focus.”
Pension adequacy review launching ‘shortly’
In his introduction to the final report of the Pensions Investment Review, pensions minister Torsten Bell stated that the second phase of the Pensions Review, focusing on outcomes, would launch “in the coming months”.
This will look in depth at how the three main “pillars” of the pension system interact: the state pension, workplace pensions, and personal pensions.
Automatic enrolment and reforms to the state pension had strengthened the foundations of the UK’s pension system, the Pensions Investment Review final report stated.
It also acknowledged that “systemic issues around adequacy currently mean millions are under-saving for their retirement, and deep inequalities persist”.
However, in the report, the government only committed to setting out the terms of reference “in due course”.
“It is 20 years since the Turner Commission, and it is time to build on that legacy by completing the job.”
Torsten Bell, pensions minister
Introducing the “roadmap” for the Pension Schemes Bill’s reforms, Bell expanded: “It is 20 years since the Turner Commission, and it is time to build on that legacy by completing the job.
“I am alive to the challenges of doing so, but we should take confidence from the policy challenges we have overcome before; the challenges of the 1990s, where the threat of employer insolvencies risked leaving employees with empty promises, and of the 2000s, where millions were saving nothing for their retirement at all.”
Speaking to journalists at the launch of the Pension Schemes Bill last week, the minister added: “We will shortly be coming forward with the next phase of the Pensions Review, focusing on pension outcomes.
“See it all as a big package: the Pensions Investment Review, followed by a Pension Schemes Bill, and then swiftly followed by moving ahead with the next phase.”
Adequacy ‘a crucial part of the puzzle’
People across the pensions industry have been calling for action on pension adequacy for years. Support had been gathering for a new independent commission, including from The People’s Partnership and investment platform Nucleus Financial.
However, earlier this year Torsten Bell dismissed the idea, arguing that the stakes were “much higher” and that it was harder to get political consensus.
Jonathan Lipkin, director of policy, strategy and innovation at the Investment Association, said in the wake of the Pension Schemes Bill’s publication: “Pensions adequacy is a crucial part of the puzzle to enable people to enjoy financial security into retirement.”
António Simões, group chief executive officer at Legal & General, said last month that the adequacy stage of the review was “critical to both the financial resilience of individuals, and the UK’s long-term economic health, and will only be achieved by increasing savings levels”.
“We have an important window of opportunity to act and urge the government to start this important work as soon as possible,” he added.
Mike Ambery, retirement savings director at Standard Life, echoed the comments and added: “It also presents an opportunity to look at how this challenge is addressed over the long-term, offering a roadmap of gradual changes that will provide individuals and businesses with much-needed certainty about the future pension landscape.”
