How can we help all savers get good pensions outcomes?

The world of pensions has changed. Britain’s pension savers are living longer and are more diverse. Richard Edes, The Pensions Regulator’s Interim Director of Strategy and Risk asks: What can be done to make sure the system works as efficiently as possible for everyone?

Britain today is not the Britain of yesterday.

People are living longer. In 1951 life expectancy for a man was 66 and 72 for a woman. In 2011 it was 79 and 82 respectively.

We are more diverse. Census data shows us the proportion of people giving their ethnic group as ‘white’ dropped from around 94% in 1991 to 86% in 2011.   

And the workplace is different. With an almost continual rise in the proportion of women in employment and long-term trends showing people choosing to work more flexibly or in self-employment.

These changes are reflected within pensions, which over the past decade have seen a seismic shift. For previous generations, pensions were typically for the higher-earning few or those with a more paternalistic employer. They saved largely into defined benefit (DB) pension schemes with a guaranteed income and employers taking more of the risk.

Today, thanks to automatic enrolment, millions more savers are putting something away for their retirements. But they are increasingly doing so through defined contribution (DC) schemes, with savers carrying more decision-making risks – whether they know it or not.

Workplace pensions active savers

In fact, there are now more than 15 times as many active savers accumulating in DC schemes than are accumulating in DB schemes. These are savers from all backgrounds, many with very different working lives to the generations before them. 

They rely on us, as regulators and industry, to do all we can to make sure the system works as efficiently as possible

Building a consumer journey that works for everybody

That’s why we have joined forces with the Financial Conduct Authority (FCA) to publish a new call for input on the consumer pensions journey.

We want to explore how, when and why savers make decisions on their pensions. The aim is to get industry’s help to identify opportunities where we as regulators or others can improve the journey savers are on – from joining the workforce to retirement.

We do not regulate consumer behaviour but in a world where pension savers’ decision-making, or lack of it, has such a key role in outcomes, it’s only right we explore what else could be done to help support people in their journey.

In our Corporate Strategy, we said we would put the saver at the heart of all we do – and making sure they are supported in their decision-making is a key strategic priority for us now and in the future. And make no mistake – there are a host of factors influencing how people interact with their pension.

From behavioural biases meaning people struggle to make decisions now about outcomes that are many years ahead to personal milestones such as marriage or home ownership, which prompt wider thoughts on finances in later in life – the issues are often not easily solved.

Perhaps even more difficult are the various, structural, societal issues which manifest within pensions, for example: the large gender pensions gap in the UK; that some ethnic minority groups are much less likely to be saving into an automatically enrolled pension; and how multiple shifts between employment and self-employment, for whatever reason, can cause savings journeys to be interrupted or stopped entirely.

Pensions reflect society. For some of these issues there may be nothing we as regulators can meaningfully do. However, by starting the debate, we can, perhaps, identify those who can and work together to build a consumer journey for pensions that works for everyone delivering the best possible outcomes.

We welcome input from all sources. If you have expertise in any area the paper touches on, please get in touch.

Read the joint TPR-FCA paper. The deadline for responses is 30 July.

By Richard Edes, Interim Director of Strategy and Risk