Pension Commission is an attempt to diffuse UK’s ticking pensions time bomb
Our pensions system is a ticking time bomb that could detonate within a generation. The Pension Commission will try and defuse it, writes Alastair King
Across the United Kingdom today, 15m people – one in four – are not saving enough for their retirement. Almost half of working-age adults are not putting a single penny into a private pension, with low earners, the self-employed, women and people in some ethnic groups less likely to be pension saving.
Retirement should be a time for relaxation and fulfilment, but, without the foundation of financial stability, for too many, it could be a prolonged period of stress and anxiety. The implications for the state could be huge.
Our pensions system is a ticking time bomb that could detonate within a generation. Announced by the Department for Work and Pensions (DWP) last week, the relaunched Pension Commission is an attempt to defuse it.
How the Pension Commission can change things
The Commission – which first reported nearly 20 years ago, and led to the hugely-successful roll-out of automatic enrolment in pension saving – will bring together trade unions, employers, independent experts and our world-leading financial and professional services sector to examine how the different elements of the system are working together, and establish what is preventing people from putting more into their retirement pots. The City Corporation looks forward to supporting the Commission in its aim to build a national consensus across government, business and society around future strategy for a pensions system that is strong, fair and sustainable. As Catherine Foot, director of Standard Life Centre for the Future of Retirement, has said, “doing so will involve complex trade-offs”, but navigating these issues now will help ensure future generations have good pension outcomes.
The relaunch comes at a time of renewed interest in, and energy around, pension reform. Like my predecessor, Sir Nicholas Lyons, I have argued that as well as being a problem to be solved, the broken pensions system is also an opportunity to be seized, with defined contributions (DC) pension schemes representing a prime untapped source of long-term capital for the British economy.
As part of my mayoral theme, Growth Unleashed, we have been working closely with industry on initiatives that seek to unlock growth while enhancing British savers’ long-term financial security.
Getting employers to help the pension revolution
Estimates suggest a 22-year-old new entrant to a default DC scheme with just a five per cent allocation to unlisted equities could achieve a 7-12 per cent increase in their total retirement savings. The Mansion House Accord is a commitment from 17 of our largest workplace pension providers, representing 90 per cent of the default DC universe, to allocate 10 per cent of default DC funds to alternative investments by 2030. At least half of that will be invested here in the United Kingdom, and the rest invested around the world: unlocking up to £100bn of investment for major infrastructure projects, clean energy and exciting scale-ups.
Our goal is to make the Accord self-sustaining, so, we have also launched the Employer Pension Pledge – a voluntary commitment by employers to make a public commitment to consider overall value for money, rather than solely cost, when reviewing or selecting pension providers. It has now been signed by 23 of the United Kingdom’s largest employers, covering more than a million savers, including Tesco, First Group and Octopus. I hope and expect many large companies will join this movement before long.
To support the Accord and Pledge, we have also launched a professional education plan – supported by the CISI and backed by the Chartered Body Alliance, other leading professional bodies and universities – which will give pension trustees, managers and policymakers throughout the pension value chain the tools and the confidence they need to invest more productively. These professional bodies have committed to offer this training at cost to benefit the British economy.
As it stands, people retiring in 2050 will be worse off than pensioners today. The pension time bomb is ticking louder than ever before, but implosion is not inevitable. The revived Pensions Commission, Accord, Pledge and Education Alliance are timely interventions with the potential to rewire our broken pensions system and improve retirement outcomes for millions of British savers. Now, we need to get on with it.
Alastair King is the Lord Mayor of Canada