- The government will carry out a comprehensive review of the adequacy of retirement incomes for future generations of pensions (Source: Workplace pensions: a roadmap – GOV.UK)
- The second phase of the Pensions Review will ‘consider the balance of all three pillars of the UK system – state, occupational and personal wealth – and how best they should combine to ensure everyone can expect a financially secure retirement’
- Names of the reviewers and the terms of reference will be confirmed in due course
- The Turner Commission carried out a similar review 20 years ago, which resulted in the introduction of automatic enrolment into pension
- Phase one of the Pensions Review was published in late May and sets out reforms to create workplace pension ‘megafunds’– the Pension Schemes Bill published yesterday sets out the legislative framework to take forward these reforms
Rachel Vahey, head of public policy at AJ Bell, comments:
“It’s now 20 years since the Turner Review was published. That comprehensive look at the UK’s retirement system ushered in a new regime for pensions, resulting in the introduction of landmark automatic enrolment reforms which changed pension saving in the UK forever.
“While details of this new Pension Review are thin on the ground at this stage, it has the potential to be as significant and could have far-reaching implications for people saving for their retirement.
“Not enough people are saving enough money for their later life, and although automatic enrolment has gone a long way to create millions of new pension savers, instead of resting on our laurels we now need to take a good look at whether they are saving a sufficient amount of money to realise their retirement ambitions.
“But this review could turn its gaze much wider than just contribution rates. It promises to look at the balance between all types of pensions, and that could mean a review of the state pension as well. It also suggests ‘personal wealth’ will be considered as part of the review, although what exactly this means remains unclear.
“Pensions minister Torsten Bell recently ruled out scrapping the triple-lock guarantee, but as the state pension grows ever closer to the frozen personal allowance threshold it could be that the government is finally forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year.
“The government now needs to clearly set out the terms of this review as soon as possible to give savers and the industry certainty over its plans.”
The Turner Review of Pensions
The Pensions Commission was established in the early 2000s and was tasked with reviewing the regime for UK private pensions and long-term savings. Over the next few years it published three reports, its final one being in 2005.
The review argued there were four polices that can address pension finance:
- Accept pensioner poverty
- Increase public spending
- Lengthen work life
- Increase saving
Its lasting legacy is the introduction of automatic enrolment into pensions, where most workers over the age of 22 are automatically enrolled into a pension scheme when they start work with a new employer. They are given the option to opt out if they want, but most remain opted in.
Since the introduction of automatic enrolment in 2012, approximately 11 million people have been newly enrolled into workplace pension schemes. This has resulted in a significant increase in the number of people saving for retirement, with a total of around 20 million individuals now contributing to workplace pensions.
