Five Steps to Better Pensions: Steps 1, 2 and 3

In our ongoing series of articles about the PLSA’s Five Steps to Better Pensions consultation and report, Alyshia Harrington-Clark, Head of DC, Master Trusts and Lifetime Savings, explores Steps 1, 2 and 3.

At our 2022 Annual Conference in Liverpool, the PLSA published its Five Steps to Better Pensions: Time for a New Consensus report

In the report, we reviewed and assessed the current pensions framework and modelled the impact of a range of potential policy interventions, finding five key elements of reform that are needed to futureproof the pensions system. Acutely aware of the ongoing cost-of-living crisis, the recommendations provide a workable and appropriate roadmap for change.

The need for this work is backed up by PLSA research which shows that, despite the successes of automatic enrolment, without further reform more than 50% of savers will fail to meet the retirement income targets set by the 2005 Pensions Commission.

WHAT ARE THE PLSA’S FIVE REFORMS?

Our five reforms are:

1. CREATE NATIONAL OBJECTIVES FOR PENSIONS

2. REFORM THE STATE PENSION

3. AUTOMATIC ENROLMENT REFORM

4. SUPPORT UNDERPENSIONED GROUPS

5. INDUSTRY INITIATIVES TO ACHIEVE BETTER PENSIONS

This graphic below shows how those five objectives are interlinked.

Over the next few issues of Viewpoint, we’ll be exploring each of the five objectives in more detail. This article considers the first three.

1 2 3 4 5

1. CREATE NATIONAL OBJECTIVES FOR PENSIONS

The first change that’s needed is the creation of clear national objectives for the UK pension system that are adequate, affordable and fair.

This needs to be combined with regular formal monitoring of whether the UK system is on track to achieve these goals, which is key to future success for the sector.

The setting of national objectives would be a boost to both businesses and employees as it would provide greater clarity around pensions aims and objectives.

National objectives will also assist with ensuring that other changes to pensions, for example to automatic enrolment, are appropriate.

2. REFORM THE STATE PENSION

The second objective is a reform of the State Pension so everyone achieves at least the Minimum Retirement Living Standard (RLS), to prevent pensioner poverty.

This is an essential aim for the PLSA as the State Pension is a powerful instrument that’s relied upon by many millions of people in retirement.

The widely endorsed RLS is a good benchmark for any changes to the State Pension as it’s recognisable and easy to understand.

3. REFORM AUTOMATIC ENROLMENT

The PLSA also believes that reform is needed for automatic enrolment. We want to see more people reaping the benefits of saving into a workplace pension – and reforms to ensure more people are included, such as younger people, multiple job holders and gig-economy workers.

Also, at a higher level, we want to see changes to ensure that people on median earnings will be likely to achieve the Pensions Commission’s Target Replacement Rates.

These measures include saving from the first pound of earnings, and gradually increasing contributions from 8% to 12% from the mid2020s to the early 2030s, with contributions split evenly between employers and employees.

Expanding the scope and level of automatic enrolment is the top strategic policy objective for the PLSA in 2023, as it celebrates its 100th anniversary.

The team will also be considering the potential implications of a Private Members Bill introduced by Jonathan Gullis MP. The government has endorsed this bill, which seeks to partially reform automatic enrolment by giving the Secretary of State the power to reduce the qualifying age to 18 and remove the Lower Earnings Limit. The PLSA is fully supportive of this Bill, as it backs up our third objective.

At the time of writing, the Bill had passed its Third Reading in the House of Commons and is now being considered by the House of Lords.

WHAT’S NEXT FOR FIVE STEPS TO BETTER PENSIONS?

As consensus is vital for bringing about change, our report contained a consultation section which sought input on the proposals from interested parties. The consultation campaign closed on 31 March 2023 and drew engagement from a range of key crossindustry stakeholders, including Sir Stephen Timms MP, Chair of the Work and Pensions Select Committee.

Part of the campaign included a series of roundtables hosted by the PLSA which explored the five steps laid out in the report. Representatives from business organisations, parliamentarians, trade unions, trade associations and charities attended these sessions, which resulted in a robust exchange of ideas and debate. Alongside the oral feedback, we also received written responses.

Next Steps

The policy team will now carefully review the feedback it has received and consider what it means for our proposals.

Given the ever-evolving political landscape and the need to maintain the positive momentum that has built up around our proposals, we intend to publish an updated edition of the report in October 2023 at our Annual Conference in Manchester. Ahead of the next General Election, the upcoming edition of the Five Steps report will play an important role in our campaigning efforts on adequacy.

We’d like to thank the Steering Group, Policy Committees, Reference Groups and the wider PLSA membership for their support and engagement with the consultation. In the next issue of Viewpoint, we’ll be exploring steps four and five in more detail.

The Five Steps To Better Pensions Report

Read more about the PLSA’s Five Steps to Better Pensions: Time for a New Consensus report online.