Govt response to WPC inquiry branded 'disappointing' and 'dangerous'

Industry experts have branded the government's response to the Work and Pensions Committee's (WPC) recommendations around pension adequacy as "bleak", "disappointing", and potentially "dangerous".

In its response, the government rejected calls to share a timetable for the implementation of automatic enrolment (AE) reforms or develop a single measure of pension adequacy, although it said it "remains committed" to introducing the 2017 AE reforms in the “mid-2020s”.

This commitment to the 2017 reforms has been welcomed, with Association of British Insurers (ABI) head of long-term savings policy and assistant director, Rob Yuille, for instance, highlighting the government’s continued pledge to introduce legislation to expand AE as “particularly important”.

“We also look forward to working closely with the Financial Conduct Authority (FCA) on the advice and guidance boundary, as noted in their response,” he continued. “This is a vital issue that needs to be addressed to better support consumers – we think further action is needed and will feed our findings into the FCA’s holistic review.

“Additionally, discussion around the potential extension of the ‘soft-opt in’ rule in the Privacy and Electronic Communications Regulations (PECR) to non-commercial organisations to help occupational pension schemes is an important step forward.”

Yet industry reception has not been universally positive, as People’s Partnership director of policy, Phil Brown, argued that the government response "doesn’t fully address how it plans to tackle the very real problem of under-saving in the future".

"With six in 10 people not saving enough to maintain their standard of living in retirement, this is an issue that will not go away on its own," he added.

AJ Bell head of retirement policy, Tom Selby, also argued that although the government has emphasised its commitment to implementing the reforms, the proposed implementation timetable of the ‘mid-2020s’ is “purposefully woolly”.

Despite this, Selby acknowledged that many households are struggling to meet day-to-day living costs, stating that while boosting pension contributions will need to become a priority over the medium term, “given the pressure facing individuals and businesses, it is understandable the government is equivocating over expanding AE at this point in time”.

However, Barnett Waddingham partner and head of defined contribution (DC), Mark Futcher, argued that while the cost-of-living crisis may make some hesitance to increase minimum contributions rates "understandable", plans for future increases should be being put in place now.

"The government is well aware that we are heading towards a ‘cost-of-retirement crisis’," he stated. “Its refusal to commit to plans to increase higher minimum contribution rates in the future is dangerous.

"Some hesitance in the face of the current cost of living crisis is understandable, but there’s no excuse not to be putting plans in place to get people closer to the 12 per cent savings target in the next few years."

Futcher also argued that, if an increase in contribution rates is not viable in the near future, the government should prioritise scrapping the minimum earnings band, which currently sits at £10,000 per annum.

"This band means low earners are much more likely to be relying solely on the state pension at retirement, and also means they miss out on a substantial part of remuneration from their employers which higher earners get via employer pension contributions," he explained.

“This widens socio-economic disparity; it would be a relatively low-cost and easy change which would make our pensions system much fairer. A vague deadline of ‘the mid-2020s’ is not good enough; we need clarity now of the exact timelines and expectations on businesses.”

Adding to this, Broadstone head of policy, David Brooks, emphasised the need to be honest with pension savers about how much they need to save for a good standard of living in retirement if minimum contributions are not expected to be increased.

He stated: “AE contributions are currently not enough for a financially secure and comfortable retirement. Therefore, the failure to set out a timetable for increasing contributions risks a whole cohort of pension savers sleepwalking into retirement destitution under the impression they will be guaranteed a good standard of living.

“While many employers and individuals will be feeling difficult financial pressures, it is vital that the government is honest about how much people need to be saving into their pension over the entirety of their accumulation journey.

“If the government isn’t going to be increasing minimum contribution levels in the near-term, at the very least we need a change of rhetoric to demonstrate the importance and urgency of building up adequate pension savings.”

Hymans Robertson partner, Kathyrn Fleming, also highlighted the government response as “fairly bleak”, raising particular concerns over the government’s response to recommendations around the pensions gender cap, and AE carers credit.

She stated: “It makes sense that the committee has recommended that the first step in tackling the gender pensions gap is to agree a definition of what it is.

"However, it is disappointing that once again there is a notable absence of any timeframe from the government to commit to reaching agreement on this definition. If this is the catalyst that will drive change, this omission supports the strong sense that this is being passed back to individuals, employers and the industry to deal with in the medium term.

“The government’s response to the AE carers credit, which could potentially help reduced the gender pensions gap, actually sidesteps any responsibility to support those who are not working due to performing a carers role.

"AE will not fix the pensions equality gap if there is not an employer to enrol these individuals into a pension scheme, even if the 2017 report recommendations do flow through.

"To say that the government will “continue to prompt people to engage with their pensions” is missing the point; these carers do not have personal pensions to engage with.”

However, Selby suggested that the most effective solutions to the gender pension gap are likely to be found in the labour market.

“If as a society we are able to equalise salaries, career progression and caring responsibilities, we should naturally see the gap between the value of men’s and women’s pensions reduce," he stated.

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