Current pensions challenges in the United Kingdom Auto-enrolment and other issues
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Transcript of 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
Current pensions challenges in the UK• Public attitudes and
trends• Auto-enrolment – 2012• State Pension Reform• High-quality DC
pensions• Scale• Risk-sharing
National Association of Pension Funds
• Leading UK body for workplace pensions
• 1,200 pension schemes
• 15 million members• £800 billion assets
The Challenges – (i) public attitudes• 12 million people not
saving enough.
• Lack of confidence:o individual, but high-
profile, scandalso frequent changes in
government policyo complexity
The Challenges – (ii) structural issues
• DB to DC shift
• Lack of scale – (the ‘long tail’)
• Flexible remuneration – rise of non-pensions saving
DB closures – correlation with regulation
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2003: EU Directive 2003/41 (the "IORP" Directive)
2004: Pensions Act 2004
2007: Pensions Act 2007
2001: FRS17 Standard and Stakeholder pensions introduced
1997: Abolition of Advanced Corporation Tax
1997: OPRA established
2002: Full buy-out requirements introduced
1988: Personal Pensions introduced
1993: Pensions Schemes Act 1993
1995: Pensions Act 1995 introduces the minimum funding requirement, new disclosure rules and member-nominated trustee
2008: Pensions Act 2008 brings PADA into law
2007: Deregulatory review of occupational pensions published
2006: A-day sees a new simplified pensions tax regime brought in
2005: Pensions Commission Second Report
2005: PPF and Pensions Regulator come into existenc1991: Pensions
Ombudsman in operation
1989: Revenue limits regime introduced
1985: Anti-franking legislation introduced for leavers on or after 1 January
The Trends
• Increased longevity• End of employer
‘paternalism’• Working longer – less
‘cliff-edge’ retirement• Increased student debt
and housing costs
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
When?
Very large Very large employers employers (>120,000)(>120,000)
1 Oct 20121 Oct 2012Large Large
employers employers (250-119,999)(250-119,999)
1 Nov 2012 – 1 1 Nov 2012 – 1 Feb 2014Feb 2014
Medium Medium employers employers (50-249)(50-249)
1 Apr 2014 – 1 1 Apr 2014 – 1 Jul 2014Jul 2014
Small Small employers employers
(<50)(<50)
1 Aug 2014 – 1 1 Aug 2014 – 1 Feb 2016Feb 2016
Find your company’s staging date on www.tpr.gov.uk/staging
New firmsNew firms
1 Mar 2016 – 1 Mar 2016 – 1 Sept 20161 Sept 2016
How much?
Qualifying earningsQualifying earnings £5,035 and £33,540 (2006/07)£5,035 and £33,540 (2006/07)
ContributionsEmployer 3%Employee 4%Tax relief 1%
TOTAL 8%
When?
Phase durationPhase duration Employer minimum Employer minimum contributioncontribution
Total contributionTotal contribution
1 Oct 2012 – 30 Sept 2016
1% 2%
1 Oct 2016 – 30 Sept 2017
2% 5%
1 Oct 2017 onwards 3% 8%
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.
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
Remaining Challenges • Majority of pensioners on
means-tested benefits
• State Pension reform
• Quality workplace pensions
State Pension Reform
• ‘Foundation Pension’• Combine basic State
Pension with earnings-related element.
• Simpler• Less means-testing
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
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
Risk-sharing
Reinvigorating occupational pensions• State Pension reform –
‘Foundation Pension’• Ensure auto-enrolment a
success• High-quality DC• ‘Super Trusts’• Risk-sharing