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Current pensions challenges in the United Kingdom Auto-enrolment and other issues

Current pensions challenges in the United Kingdom Auto-enrolment and other issues. James Walsh Senior Policy Adviser, workplace pensions, NAPF. Public attitudes and trends Auto-enrolment – 2012 State Pension Reform High-quality DC pensions Scale Risk-sharing.

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Current pensions challenges in the United Kingdom Auto-enrolment and other issues

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  1. Current pensions challenges in the United Kingdom Auto-enrolment and other issues James Walsh Senior Policy Adviser, workplace pensions, NAPF

  2. Public attitudes and trends Auto-enrolment – 2012 State Pension Reform High-quality DC pensions Scale Risk-sharing Current pensions challenges in the UK

  3. National Association of Pension Funds • Leading UK body for workplace pensions • 1,200 pension schemes • 15 million members • £800 billion assets

  4. 12 million people not saving enough. Lack of confidence: individual, but high-profile, scandals frequent changes in government policy complexity The Challenges – (i) public attitudes

  5. DB to DC shift Lack of scale – (the ‘long tail’) Flexible remuneration – rise of non-pensions saving The Challenges – (ii) structural issues

  6. DB closures – correlation with regulation

  7. The Trends • Increased longevity • End of employer ‘paternalism’ • Working longer – less ‘cliff-edge’ retirement • Increased student debt and housing costs

  8. Auto-enrolment - from 2012 • Hugely important reform • Political consensus • Automatic enrolment and minimum employer contributions • NEST (National Employment Savings Trust) - important role where no pensions are currently provided

  9. When? Very large employers (>120,000) 1 Oct 2012 Find your company’s staging date on www.tpr.gov.uk/staging Large employers (250-119,999) 1 Nov 2012 – 1 Feb 2014 Medium employers (50-249) 1 Apr 2014 – 1 Jul 2014 Small employers (<50) 1 Aug 2014 – 1 Feb 2016 New firms 1 Mar 2016 – 1 Sept 2016

  10. How much? Qualifying earnings £5,035 and £33,540 (2006/07)

  11. When?

  12. Opt-outs from auto-enrolment? • UK Government estimates 9-10m people eligible for auto-enrolment. • 2-4m to opt out. • Employers are budgeting for opt-out rate of 25%. • 20-40% for smaller employers.

  13. NAPF assessment • 5-9 million extra people into pension saving • Focus on implementation • But auto-enrolment + State Pension only = 45% replacement ratio • Review in 2017

  14. Remaining Challenges • Majority of pensioners on means-tested benefits • State Pension reform • Quality workplace pensions

  15. State Pension Reform • ‘Foundation Pension’ • Combine basic State Pension with earnings-related element. • Simpler • Less means-testing

  16. High-quality DC pensions Pension Quality Mark to raise DC standards Independent standard of quality Over 100 PQM schemes already 160,000 savers in PQM schemes www.pensionqualitymark.org.uk

  17. Scale and governance – ‘Super Trusts’ • Larger schemes = lower costs, superior buying power, better governance • Could consolidate existing DC schemes. • Potential vehicles for risk-sharing • Scope for lighter touch regulation

  18. Risk-sharing

  19. Reinvigorating occupational pensions • State Pension reform – ‘Foundation Pension’ • Ensure auto-enrolment a success • High-quality DC • ‘Super Trusts’ • Risk-sharing

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