PLSA proposes national retirement income targets

The Pensions and Lifetime Savings Association (PLSA) has launched a wide-ranging report and consultation that sets out a number of proposals that it believes will help deliver better retirement outcomes.

The key proposal is the introduction of national retirement income targets to help savers more easily understand how much they need to put aside whilst working in order to achieve a desired standard of living in later life.

The PLSA looks to the retirement standards developed by its Australian counterpart in 2004, which set out the income required to support a comfortable or a modest lifestyle in retirement and go on to explain what each is likely to mean in terms of specific categories of expenditure.

As part of the consultation, further in-depth analysis will be undertaken to determine exact income levels.  However, the PLSA’s initial research suggests that for a single person the retirement income targets in the UK might be minimum (£10,000 to less than £15,000), modest (£15,000 - £25,000) and comfortable (more than £25,000).

Alongside the development of the targets the PLSA makes a range of proposals for changes in policy, regulation and industry practices to support people in achieving the necessary level of savings.  These include the following:

• Increasing the level of minimum auto-enrolment contributions to 12% of salary during the 2020s and widening the scope of auto-enrolment to include the self-employed, 18-21 year olds, “gig” economy workers and those holding multiple jobs with aggregate earnings over £10,000 pa
• Finding ways in which property wealth can be taken into account when planning retirement income
• Improving governance practices across all workplace pension schemes; and
• The introduction of a new regulatory framework for decumulation

Consultation closes on 12 January 2018, after which the PLSA intends to host a series of nationwide events before finalising its ideas in a further paper.

Comment

There is a lot of sense in developing national retirement income standards along the lines being proposed and then publicising them in initiatives such as the Pensions Dashboard – the more that those in work can be made aware of what they should be aiming for the better.  But whether they can put into place the necessary retirement savings is another thing.

ABI delivers recommendations for Pensions Dashboard implementation

The next stage in the Pensions Dashboard project has been reached with the publication of a roadmap of what needs to be done to give everyone in the UK online access to all of their pension information.  The Association of British Insurers, which is running the project, also calls for firm Government direction on its plans for pensions dashboards.

Since the Government-sponsored (but industry financed) prototype was unveiled to the public in April (see Pensions Bulletin 2017/17) work has continued to research consumer needs, engage with the wider industry, refine technical standards and look at how dashboards could be appropriately regulated.  The findings and recommendations arising from this stage are set out in a report entitled “Reconnecting people with their pensions”.

The overall recommendation is that consumers should have a right to access information about all of their pensions in one place of their choice in a standardised digital format, through regulated services.

Steps outlined to achieve this include:

• Government legislation to ensure all pension providers and schemes make their data available
• An implementation timetable, and an implementation and governance body which will establish the necessary standards for all involved; and
• Establishing a non-commercial, Government-backed platform which will operate alongside services from third parties

More details, including ten recommendations, can be found in the report.  Many of these require Government action, such as the DWP making data about the State Pension available on day one.  But the most critical decisions sought from Government are whether providers and schemes will be compelled to make data available and by when, and whether the project is to have a greater ownership by Government going forward.

Comment

One cannot help but detect some frustration at the ABI.  Having been asked by the Government to deliver the pensions dashboard and do it quickly, it seems that there has been a loss of interest at the Treasury.   Perhaps the Pensions Dashboard is yet another important project that is suffering due to the black hole that is Brexit apparently sucking all Government resources into it?

September CPI and RPI inflation measures announced

Tuesday’s announcement that the Consumer Prices Index rose by 3.0% over the twelve months to September 2017 sets the scene for a number of pension benefits and limits next year:

• It seems that the Basic State Pension (currently set at £122.30 pw) and the Single Tier State Pension (£159.55 pw) will increase next April by the CPI rate of 3.0% as this is greater than 2.5% and the normal measure of earnings growth that is used which is showing an increase of 2.2%
• SERPS and S2P entitlements will also increase by 3.0%% next April
• Next year, occupational pension schemes that apply the Limited Price Indexation rules to pensions in payment will have to increase them by 3.0% for the pension that accrued between 6 April 1997 and 5 April 2005 and 2.5% for the pension that accrued after 5 April 2005 – and GMPs that accrued after 5 April 1988 will also increase by 3.0%
• The one year minimum revaluation of that part of a deferred pension in excess of any GMP will be 3.0% for the 5% capped orders and 2.5% for the 2.5% capped orders
• Following the CPI linkage introduced by Finance Act 2016, the £1m lifetime allowance for pensions tax purposes should increase to £1,030,000 on 6 April 2018; and
• For those accruing defined benefits or cash balance, the increase in the CPI of 3.0% is effectively the inflation allowance made before the annual allowance starts to be used up in the 2018/19 tax year

Over the same period the Retail Prices Index rose by 3.9%.

Comment

The adverse publicity from some quarters that normally greets the annual uprating of State Pensions is likely to be muted this year, but pensioners are still doing better than those in work.

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.