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

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

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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. - PowerPoint PPT Presentation

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

Page 1: 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

Page 2: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

Current pensions challenges in the UK• Public attitudes and

trends• Auto-enrolment – 2012• State Pension Reform• High-quality DC

pensions• Scale• Risk-sharing

Page 3: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

National Association of Pension Funds

• Leading UK body for workplace pensions

• 1,200 pension schemes

• 15 million members• £800 billion assets

Page 4: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

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

Page 5: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

The Challenges – (ii) structural issues

• DB to DC shift

• Lack of scale – (the ‘long tail’)

• Flexible remuneration – rise of non-pensions saving

Page 6: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

DB closures – correlation with regulation

2.62.7

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ions

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

Page 7: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

The Trends

• Increased longevity• End of employer

‘paternalism’• Working longer – less

‘cliff-edge’ retirement• Increased student debt

and housing costs

Page 8: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

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

Page 9: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

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

Page 10: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

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%

Page 11: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

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%

Page 12: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

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.

Page 13: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

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

Page 14: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

Remaining Challenges • Majority of pensioners on

means-tested benefits

• State Pension reform

• Quality workplace pensions

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State Pension Reform

• ‘Foundation Pension’• Combine basic State

Pension with earnings-related element.

• Simpler• Less means-testing

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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

Page 17: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

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

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Risk-sharing

Page 19: Current pensions challenges in the United Kingdom  Auto-enrolment and other issues

Reinvigorating occupational pensions• State Pension reform –

‘Foundation Pension’• Ensure auto-enrolment a

success• High-quality DC• ‘Super Trusts’• Risk-sharing