How to improve pension outcomes without a Pensions Review

Reports that chancellor Rachel Reeves had put the brakes on the Pensions Review were met with widespread disappointment and frustration across the industry this month. 

The Financial Times reported that phase two of the review – expected to focus on measures to improve pension adequacy – had been delayed until the new year, but that there was no clear timetable for when it would restart. 

With policymakers unlikely to take further action any time soon, Pensions Expert asks: What can the pensions industry do to improve member outcomes without relying on government intervention? 

Raising contributions

Gemma Burrows, senior DC consultant at WTW, said employers and pension providers could help savers to put more into their pension pots. 

“Don’t leave employees under the impression that default contributions are the ‘right’ amount to save,” she said. “Encourage employees to use the modelling tools, usually available from the provider, to understand what they’re on track to achieve and what retirement could look like for them.” 

She also encouraged employers to highlight matching contributions, adding that they could also raise their default contribution levels above the auto-enrolment minimum. 

In a report published in April, WTW warned that lower contributions risked “widespread pensions inadequacy for many employees” in DC schemes. 

Rather than leaving it to employees to “opt up” to higher contributions, WTW said staff should be given higher contributions as a default and offered the option of reducing these if affordability became an issue.

Maggie Rodger, co-chair of the Association of Member Nominated Trustees (AMNT), said: “It is difficult for the industry to make improvements to defined contribution (DC) pension outcomes that would compensate for the missing final steps of the auto-enrolment plan. 

“However, perhaps pension schemes or the industry can find a better way to explain to members the difference increased saving rates can bring – and that the auto-enrolment minimums are not enough.” 

Pensions dashboards

In 2025, the first deadlines for connection to the pension dashboards ecosystem will arrive from the end of April. 

David Brooks, head of policy at Broadstone, said: “The success of pension dashboards is likely to play a key role in supporting pension adequacy by giving savers better visibility of their accumulation journey. 

“Alongside this, greater publicisation of retirement living standards could help to ensure people can clearly see what sort of retirement they are on track for and, if necessary or possible, make the required shifts to change course.” 

Richard Smith, independent consultant and voluntary chair of the Pensions Dashboards Operators Coalition, highlighted that dashboards should be used to make it easier for people to increase their pension contributions by providing direct links to payroll. 

Financial education and communication

Sophia Singleton, president of the Society of Pension Professionals (SPP), expressed frustration about the delay to the second phase of the pensions review, but said financial education tools and resources were already being used to support pension savers. 

“Many pension firms now offer financial education resources and tools and there has been a big improvement in communication materials, making them more accessible and encouraging greater saving.”

Sophia Singleton, SPP

“Many pension firms now offer financial education resources and tools and there has been a big improvement in communication materials, making them more accessible and encouraging greater saving,” Singleton said. 

“These rightly remain areas of focus for further improvement. The industry is taking innovative steps to keep pace with the latest trends and technologies too. For example, the gamification of pension saving has been shown to lead to increased savings amongst some. 

“Likewise, the industry’s use of artificial intelligence is leading to more personalised recommendations based on an individual’s financial data and goals, providing personal recommendations on contribution levels and retirement income targets. 

“There is no single solution, we all need to work together – industry, government, regulators and employers – to ensure that more people save enough for their futures.” 

WTW’s Burrows said providing guidance to members through mechanisms such as the pension advice allowance could help people “understand what they might achieve and the options they have available”. 

Rodger at the AMNT said member-nominated trustees could be used as “trusted communicators” to raise awareness of the importance of higher contributions. 

“The messaging would remind them that additional contributions will accrue greater benefits for them and not some faceless government or scheme initiative,” she said. 

“If it’s true that ‘when one door closes another opens’ then, after all the initial feelings of disappointment, I’m hoping the industry can find creative solutions.” 

Decumulation 

The Department for Work and Pensions is expected to publish a response to the decumulation options consultation, which was launched in 2023 by the previous government. 

“We should be innovating – far faster than we have since pension freedoms – to drive positive change rather than relying on regulation to support savers.”

David Brooks, Broadstone

Burrows said new requirements on trustees to ensure their DC pension schemes provided decumulation options presented an opportunity. 

“As well as negotiating access to competitive drawdown options, this might mean looking at ways to allow employees to purchase an income for life that is expected to be higher than an annuity,” she said, “although legislative change will be needed to allow collective defined contribution retirement income options.” 

Broadstone’s Brooks added: “At the point of retirement, the industry could do more on decumulation solutions and investment pathways so members can make good choices or, if they can’t, have good choices made for them. 

“We should be innovating – far faster than we have since pension freedoms – to drive positive change rather than relying on regulation to support savers.”