Adequacy stage of Pensions Review ‘delayed by Treasury’

The Financial Times has reported that chancellor Rachel Reeves has delayed the commencement of the second phase of the Pensions Review, without specifying a date for when it will begin.

It had been expected that the review – being led by pensions minister Emma Reynolds – would begin by the end of 2024, but with just two weeks left of the year this is now not going to happen.

One source told the FT that Reeves was “very aware of the fact that business is facing more tax and she is serious about ensuring that new burdens are not placed on business”.

In the Budget at the end of October, Reeves raised national insurance contributions for employers and reduced allowances, meaning a substantial additional tax bill for many companies.

At the time, industry experts warned that this move could affect the ability to raise pension contributions from employers – many of which are still grappling with high energy bills and other operating expenses.

Calum Cooper, head of pensions policy innovation, said: “A prolonged, open-ended delay will be damaging for industry confidence in the ability for real change to take place.

“More importantly, it defers better retirement prospects for millions of people. Retirement adequacy is an enormous issue for savers heading towards retirement, and in turn this will remain an ongoing concern for future governments and UK society as a whole.”

Raising costs ‘a political minefield’

For some time, trade associations, pension providers and other organisations have been lobbying for increases to the minimum auto-enrolment contribution rate, as well as other changes to expand its scope.

Dozens of surveys and research papers have found that UK savers are not saving enough for a comfortable retirement and are growing increasingly worried about being able to afford to stop working.

Standard Life research, for example, has forecast that three in five people in the early 2040s will be entering retirement with “inadequate” savings.

Mike Ambery, retirement savings director at Standard Life, said: “We’ve argued that changes can be implemented as economic conditions allow and that a key step is to set out a roadmap so businesses and individuals know the direction of travel.

“In Australia they have sought to bring savings levels up over a long timeframe and a similar strategy of small, incremental change over an extended period could bring about real benefits.”

Yvonne Braun, director of policy, long-term savings, health and protection at the Association of British Insurers, said: “We understand that the government can’t put additional pressure on businesses at this time. But a roadmap for the longer term is still sorely needed to prevent pensioner poverty in the future, and to chart a clear path that gives businesses and individuals the certainty to plan.”

Jon Dean, head of retirement strategy at Altus Consulting, said higher pension savings rates were “sorely needed” as contributions were “the single biggest factor in good member outcomes”.

“However, the government knows how dependent the successful realisation of its policy programme is on the goodwill of businesses,” he added. “Having increased businesses' costs in October’s Budget, clearly it senses a political minefield ahead should it further add to payroll costs through additional pension contributions.”

‘Widespread disappointment’

David Fairs, partner at LCP, said: “With the state pension age review due to commence no later than July 2026, there was a very tight window for the second stage [of the] Pension Review to take place.

“The scope of the second stage review was always going to be large and incorporate both the 2017 recommendations on auto-enrolment and also a wider review on adequacy. There is quite a lot to get through over 2025.”

The previous government pledged to implement legislation lowering the age and income limits on auto-enrolment eligibility by the mid 2020s, but Fairs said today’s news could mean that these changes do not happen on this schedule.

Tom McPhail, director of public affairs at consultancy group The Lang Cat, said the delay would be “met with widespread disappointment across the financial services industry and associated public policy stakeholders”.

“If the government isn’t willing to tackle head-on the tough political choices a Pensions Review entails, it should appoint an independent commission to take on the hard work instead,” he said.

“A commission could build political consensus for the difficult decisions which urgently need addressing and could provide elected officials with the necessary air-cover to actually implement some of these changes.”