The election is looming!

We talk a lot about pensions and what needs to be done. Issues like: what makes an adequate income, how we ensure value for money and whether schemes are investing properly have been hotly debated and are receiving government attention.

With a few policy strands already in train, the thought of a looming general election is daunting; will a new government change the path? Or, will they bring a fresh viewpoint to issues such as adequacy or equality?

Several key areas could receive more, or less, attention depending on the new government and the fate of some future pensioners will be significantly affected by the decisions a new government makes.

State pension compensation

It would be remiss of me not to start with the recent report by the UK Parliamentary and Health Service Ombudsman, which called on the Department for Work and Pensions (DWP) to provide compensation to women born in the 1950s and negatively impacted by rapid state pension age increases with, as they claim, little to no notice – the WASPI women (Women Against State Pension Inequality).

The current government has suggested they will not comply with the ombudsman’s recommendation and so the body has called on parliament to intervene. Since then, the DWP has said it is looking into it and will feedback at some later date.

Without an election, the prospect for the WASPI women does not look promising, but a new government, and a new party, may take a different approach.

The ombudsman has suggested compensation for WASPI women could be as high as £3,000 per individual, and this could total a heavy bill for government alongside other ongoing compensation schemes for postal workers and recipients of contaminated blood.

But another government may see compensation as the right route, and insist on paying all victims of perceived government injustice. It will be very interesting to see what this means for women, pensioner incomes and government finances if so.

The importance of adequacy

Another area where we could see some movement is adequacy. Workplace defined contribution (DC) pension members are generally contributing towards the minimum regulated level of 8% of a band of earnings.

PPI modelling has shown that a median earner, contributing for all of their working life, would probably need to contribute somewhere in the region of 16% of total salary to have a good chance of maintaining the same standard of living in retirement that they had during working life.

While there are some moves towards increasing contribution levels, for example, legislation allowing for the age of eligibility for automatic enrolment to be lowered to 18 and reducing the contribution earnings band lower level to £0, these have yet to be enacted.

There are moves within industry, such as the introduction by the Pensions and Lifetime Savings Association of its Retirement Living Standards income targets, which can be used to help people plan their contribution levels.

There has been talk as well about individual employers introducing ‘auto-escalation’ policies, whereby contributions would automatically increase at a certain time in the future, with the prior consent of the employee.

What we haven’t seen, however, is a discussion about exactly how much the government expects people to source themselves, and how much they feel the state pension should provide.

Underlying this is a need for a clear message on what adequacy is. Does the government expect people to aim for meeting their basic needs in retirement, replicating their working life living standard or somewhere in between? What is the responsibility of the state, the employer, the individual?

These conversations and some guidance on what is expected by government would really help shape state and private pensions policy going forward.

A long ‘to do’ list

What else is going on? We are developing a framework on value for money in pension schemes, there are new requirements and consultations on how pension schemes invest and whether enough notice is being taken of climate change, social, environmental and governance factors, and whether schemes are making the best use of both UK and international assets and private market offerings.

We have the pensions dashboards under way, a government intention to introduce multiple default consolidators to consolidate small deferred-member pots. There are also discussions about introducing a future lifetime provider model, which would require employers to contribute to multiple pensions and allow members to maintain a single pot for life.

These policy agendas have thrown up thorny issues around data transparency, data standardisation, the ease of matching individuals to their pots, and potential secondary market effects.

I don’t envy a government having to see these policies through, though I am optimistic that together they represent improvements in service and outcomes for future pension members. Juggling these existing strands with questions around compensation and adequacy will be tricky, so it will be really interesting to see our next government’s approach.

Whatever course a future government chooses, I think we are probably in for more landscape changes and more problems to solve.

Daniela Silcock is head of policy research at the Pensions Policy Institute.