More than ten million UK workers have been enrolled into occupational pensions since the introduction of automatic enrolment (AE) in 2012, according to figures released by The Pensions Regulator on 11 February, reports Maria Espadinha for FT Adviser
. She quotes Amber Rudd, secretary of state for work and pensions, who said that AE “is an extraordinary success story”.
“Workplace pensions had fallen out of fashion and were seen as the preserve of older, wealthier people. Now saving is the norm across the UK, wherever you work.”
But, according to Espadinha, The Pensions Regulator figures show that there are 9.3 million workers who either aren’t saving into a pension or do not qualify because of their age.
Espadinha quotes former pensions minister Baroness Ros Altmann, who said that more needs to be done: “Although auto-enrolment has brought millions of low earners into pension saving for the first time, it only covers those who earn more than £10,000 a year with an employer.
”Many part-time workers, mostly women, who earn less than this level, or who have more than one employer and earn below £10,000 from each one, are left out of the auto-enrolment process.
“They lose out on help from their employer towards their retirement income.”
FT Adviser article
Losing out on pension income?
The FCA is consulting on measures to stop consumers losing out on pension income, according to Aamina Zafar, reporting for Adviser Points of View
. The regulator is proposing that firms offer a range of investment solutions or ‘pathways’ that broadly meet the objectives of customers who don’t take advice. This could help up to 100,000 consumers a year when they access their pension freedoms.
Christopher Woolard, executive director of strategy and competition at the FCA, says that pension freedoms allow consumers more flexibility, but that means making more complicated choices too. He points to the FCA’s 2018 Retirement outcomes review
, which identifies that many consumers are focused only on taking their tax-free cash and taking the easiest route when entering drawdown.
“We found that around one in three consumers who have gone into drawdown recently are unaware of where their money is being invested,” he says and, therefore, the investment pathways can help the non-advised drawdown consumers. They will be able to choose from four relatively simple options, with an aim to meet their broad retirement objectives, maximising their retirement income.
The FCA is proposing that consumers’ pension investments are not defaulted into cash savings unless the consumer actively chooses this option. It is also announcing new rules on the ‘wake-up packs’ that must be given to consumers as they approach retirement and on the disclosure of charges by pension providers.
Steve Webb, director of policy at Royal London, commented on the policy statement: “These FCA rules are a sensible response to the risk of savers sleepwalking into seeing their hard-earned savings eroded by sitting in low-return cash investments. But there is still a problem where people cash out the whole pot and transfer it into a cash ISA or current account.”
Changes on making the cost of drawdown products clearer and comparison easier will come into force on 6 April 2020 (although this is still subject to consultation). The FCA is inviting feedback from stakeholders
on measures in the consultation paper by 5 April 2019.
Adviser Points of View article
While some pension holders may be ill-informed about their drawdown options, could workers also be in the dark about where their money is being invested? According to research
by ShareAction, a charity that promotes responsible investment, just a small number of FTSE 100 firms are matching their sustainability claims with ‘climate safe’ pensions for their staff, writes Michael Holder for news site Business Green
Holder says that researchers contacted 25 FTSE 100 company pensions schemes and 15 responded, “covering around one million workers and £17.5bn of assets under management”.
Only two of the respondents – HSBC Bank Pension Scheme and RBS Retirement Savings Plan – say they have “changed their default investment strategies to reduce the climate-risk exposure of their staff’s pensions”. Six of the pension schemes are considering further action to address such issues, including Aviva Staff Pension Scheme and Unilever’s Pension Fund DC Investing Plan.
However, 13 of the companies have publicly backed climate risk initiatives, such as the RE100
campaign to source 100% renewable power.
Holder suggests that the retirement savings of hundreds of thousands of workers could be highly exposed to climate-related risks, “with some of the UK's biggest company pension schemes sticking with investment strategies that fail to address exposure to carbon intensive assets”.
Business Green article
The past decade has been a transformative one for pensions, but concerns around issues such as income loss and the lack of green investments suggest that there may be more changes to come.
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