Christmas is allegedly the season to be jolly so it seems to be an appropriate time of year to remember the good things about the UK pension scene. There are a lot of them!
Firstly, there are currently well over 10 million members of Defined Benefit (DB) schemes in the UK private sector. This includes 1.3 million people who are still accruing benefits, not to mention all those in the public sector. The private sector is currently paying over 4 million pensions regularly and in full. Despite the impact of the credit crunch, low interest rates and increased longevity, these DB schemes are now estimated to be funded at 73% of the full cost of buying guaranteed benefits from an insurance company, up from 60% in 2006.
There are still inevitably some corporate failures where members have to rely on the Pension Protection Fund (PPF) for their benefits. There are less than 250,000 who have had to do so since the PPF started in 2005 though and their payments from the PPF are well-protected, with £6.7 billion reserves and an estimated probability of 91% of meeting their funding target. The PPF is funded by a levy on the other schemes and the total levy fell last year to £541 million, some way below the £725 million that the PPF was able to pay out. That’s a wonderful improvement from the bad old days when members could lose their pensions entirely if their employer went bust.
On the Defined Contribution (DC) side, auto-enrolment has been a huge success too. The statistics at the end of November 2018 showed that 9,958,000 people have been auto-enrolled into pension schemes, which is a massive number of new savers who won’t be solely reliant on the State pension when they retire. That’s particularly important when the State pension itself is under huge pressure due to an ageing population and austerity and it again shows the advantages of personal pension saving.
Finally, the pension industry keeps trying to improve the regulatory landscape to get the best results. Successive Governments have decimated DB schemes with excessive regulation and, more significantly, by imposing additional financial obligations on schemes retrospectively. We have been lobbying for years for more flexibility and it’s great to see that the Royal Mail and Communications Workers Union have got support from the DWP and politicians to try a new Collective DC arrangement. This isn’t a magical solution to the pensions issue but it has a lot of merit and it’s great to see the industry trying to make the best of a very muddled legislative background.
We’re very proud at Spence to be part of the industry that has delivered these opportunities for millions of people to have a better quality of retirement. The real stars of the industry though are still the sponsoring employers who have paid most of the money needed over the years for their staff to get decent pensions. We also need to recognise the diligent efforts and hard work from trustees, who give up their time and wrestle with the complexities of pension regulations to get the best outcomes for their schemes and members.
Well done everyone and a Merry Christmas to you all.