The government may find its options limited when trying to improve pensions adequacy, writes Pensions Expert editor Nick Reeve. It may be left to the industry to work on improving retirement outcomes.
At the start of this week, as pensions minister Torsten Bell presented the Pension Schemes Bill to parliament in a disappointingly empty House of Commons, the Department for Work and Pensions proclaimed that the bill’s combined policies could boost pension pots by as much as £29,000.
Leaving aside the wide variety of other such forecasts this and other governments have attached to their policy proposals, the number of caveats and assumptions required to get to this figure make it all but meaningless. There is no doubt that many of the bill’s proposals are welcome and will have a positive impact for many people, but they cannot, and should not, be captured in such an overly simplistic way.
Rant over – it’s too hot to get too annoyed by that anyway.
Last month, when the Pensions Investment Review’s final report was released and the Pension Schemes Bill laid before parliament, we were promised the Pensions Adequacy Review would follow imminently.
Rumours have swelled in the past few days that the government will announce this review next week, with chancellor Rachel Reeves due to give her Mansion House address on Tuesday.
However, just as Reeves is struggling to balance the UK’s budget and kickstart economic growth, so Torsten Bell and the DWP may find their options limited when it comes to boosting adequacy.
There is widespread consensus that increasing auto-enrolment minimum contributions would have a major positive impact, but also that this would be unpalatable to businesses still struggling to handle national insurance hikes and other costs.
There is widespread consensus that increasing auto-enrolment minimum contributions would have a major positive impact, but also that this would be unpalatable to businesses still struggling to handle national insurance hikes and other costs. Individuals may also struggle to adapt to lower take-home pay amid the rising cost of living.
So what options are there? I’m a big believer in improving financial literacy, but it’s unlikely that the government has the spare cash to provide major boosts to services such as Pension Wise. This is why the Financial Conduct Authority’s targeted support regime will be so crucial, as the Investment Association pointed out recently.
Perhaps it is time for an adequacy-focused equivalent of the Mansion House Accord? Private sector pension providers could work together to agree on high-level principles – financial literacy, minimum income standards, accessibility, to pick three examples.
There is certainly the strength of feeling across the pensions and investment sectors that something needs to be done to support the millions of people now and in the future who will rely on defined contribution pensions for their later life. The sooner we act, the better for everyone.
Nick Reeve is editor of Pensions Expert.
