JLT Employee Benefits has launched a white paper, which provides an analysis of the evolution of the pensions landscape in the UK since the Pensions Commission report in 2004.
The paper, Achieving the 21st century pensions settlement, was launched at a panel discussion at the Liberal Democrats’ party conference on 16 September.
It offers recommendations across a range of topics, including:
- Decommissioning defined benefit (DB) pension schemes: Employers are spending more on DB pension deficit contributions than on defined contribution (DC) pension provision for current employees. If they are expected to properly engage with their DC schemes or seriously consider defined ambition as an alternative, then employers need more support in their endeavours to manage down existing pension liabilities that no longer play a part in the recruitment, retention or motivation of employees.
- Pot-follows-member schemes: The concept of automatic transfers should be extended to all transfers. However, to protect members from fraud and from themselves, trustees should be allowed to refuse a transfer request where they have a reasonably founded concern that pensions liberation is taking place.
- Open market option: Consideration of the open market option must be made compulsory. Auto-enrolment schemes should have a process to help members at retirement and alternatives to annuities should be explored as part of the defined ambition initiative.
- Working longer: Delaying retirement or, at least, full retirement has to be part of the solution for achieving pensions adequacy. The UK needs to remove barriers to working longer and ensure that workers delaying their retirement remain productive by staying healthy, so that they are not just ‘retiring on the job’.
The report has also highlighted some further considerations to improve member outcomes, including:
- Active intervention, a natural extension of auto-enrolment, should be an option for governance bodies in contract-based arrangements.
- In relation to pension scheme charges, providers should be required to follow the practice of some utilities by introducing ‘tariff checks’ and telling consumers when they might save money by moving their pension savings.
- Member communications should focus on pension outcomes, expressed as a replacement income, not fund values.
- Consideration should be given to a ‘pension risk simulator’ to help communicate uncertainty about projections of future pension benefits and to elicit pro-active responses from members. Ownership could rest with the The Pensions Regulator or the Money Advice Service.
- Government should follow through on previous consultations and make financial education a statutory part of the national curriculum in schools throughout the UK.
- Further research should be undertaken into whether the tax and other incentives for pensions saving are effective and understood by those they are intended to incentivise.
- A successor body to the Pensions Commission should be established to ensure changes are ‘joined-up’ and to inform debate over the long-term.
Mark Wood (pictured), chief executive officer of JLT Employee Benefits, said: “Auto-enrolment has thus far been a success story, with extremely low opt-out rates (as low as 2%), even in these times of austerity.
“It is a significant step forward in increasing future pension incomes. The focus should now be on ensuring that every £1 paid by members is made to work as hard as possible to improve retirement incomes.
“People are still not saving enough for their retirement due to a number of socio-economic factors. Even the combination of the single-tier state pension and the proceeds of an auto-enrolment scheme is unlikely to provide an adequate pension for most people.
“We need the system to work in the best interest of consumers to protect and increase the level of participation and rebuild trust. As an industry, we need to encourage members to save with improved communication, more simplicity and transparency, and easy options to improve their pension position.”