The Pensions Policy Institute has launched the PPI UK Pensions Framework, an analytical instrument designed to support long-term analysis of how changes in the UK state and private pension systems are impacting the experiences that people have in later life.
Its purpose is to build a single resource that can support evidence-based policymaking by documenting how changes in the UK pensions landscape are impacting multiple areas of society over time.
By combining the viewpoints of individuals, households and employers, the PPI hopes that the pensions industry and the government will be able to better see how changes shape the living standards of older people today, as well as future retirees.
The process included consultation with more than 70 key pensions policy stakeholders, resulting in a first-of-its-kind model for the UK pensions industry.
There is now a pressing need for a dedicated UK framework which can support consistent analysis of what strengths, weaknesses and impacts of the current pensions system mean for the retirement prospects of people and their families, recognising that every retirement journey is different
Anna Brain, PPI
Evolving pensions system
According to its main report, the framework comes in response to a series of “major demographic forces, economic trends, industry developments and policy reforms”, resulting in a shift in how people need to prepare for retirement.
The PPI warned that without a clear overview of what these changes could mean, it will “be challenging to understand how the pensions system is working to deliver its overall goal of providing financial security and to design policies that are correctly targeted to support it”.
Anna Brain, research associate at the PPI, noted the UK pensions landscape “is going through a period of rapid transformation in response to the impact of economic, demographic and policy change”.
She said: “There is now a pressing need for a dedicated UK framework which can support consistent analysis of what strengths, weaknesses and impacts of the current pensions system mean for the retirement prospects of people and their families, recognising that every retirement journey is different.
“We also need to understand how outcomes are related to each other, what they mean for the longer-term role of employers, the pensions industry and the government in the system.”
System design
Under the framework, policy inputs will be filtered through the state, industry, employers and individuals. They will then be assessed under the three core objectives: adequacy, sustainability and fairness.
Within each of the three objectives are a series of sub-objectives that represent core components of the pensions system, and a series of metrics, known as indicators, will be used to quantify the state and outcomes of the pensions system.
These indicators are examined from the perspective of different stakeholder groups in order to establish how policy outcomes are produced in the context of the current system, or a proposed change to it.
“The PPI’s UK Pensions Framework aims to support the development of the future of pensions policy by allowing stakeholders a co-ordinated and holistic view of changes across the system for the first time,” Brain said.
“The framework also goes beyond a one-dimensional view of changes by showing how policy reforms are affecting key parties, what secondary effects may occur, and where trade-offs might exist.
“The framework analysis is structured around three interdependent objectives, each of which is integral to the overall goal of the pensions system — helping people to achieve financial security in later life.”
According to the framework’s main report, the design of the system has posed many challenging questions, such as the extent to which non-pension factors that influence retirement outcomes, including social care and homeownership, should be incorporated, as well how the wider objectives of sustainability and responsible investing should be reflected.
The report stated that not every question can be answered immediately, and that the important goal for this year is to “establish the foundations upon which the future of the framework can be built.”
Dynamic instrument
Next year, the PPI will publish the first edition of the framework, setting out a full analysis of how the UK pensions system is working to support appropriate retirement outcomes.
Brain continued: “From thereon, the framework will be a dynamic instrument, tracking changes each year and simulating the effect of potential shifts or reforms on the system.
“The analysis will provide policymakers with a comprehensive understanding of how each potential change might affect other elements of the system, and ultimately the experiences that people in the UK have in later life.”
Doug Brown, chief executive of UK and Ireland life at Aviva, which sponsors the project, said: “The UK’s pensions system, and the policy that underpins it, is not just important for pension savers but is fundamental to society more generally.
PPI: Governance should be focus of UK value-for-money framework
Lessons on how to successfully integrate robust governance procedures in providing value for money in UK pensions must be taken from overseas, the Pensions Policy Institute has said.
“The PPI’s framework is an impressive piece of work. It’s a powerful, practical tool, which I’m confident will help ensure pensions are fair, sustainable and will better enable people to enjoy the retirements that they deserve.”
Publication of the framework was received warmly by the industry, with Darren Philp, commentator and director of policy and communication at Smart Pension, tweeting that the framework is “potentially game-changing” for the UK pensions system.
Rob Yuille, head of long-term savings policy at the Association of British Insurers, said that the framework will be a “valuable tool for analysing the macro picture of UK pensions (and a bit wider) policy, as well as the impacts of specific policy changes”.
