A-Day was not the panacea to the pensions gap but it did “sow the seeds for many of the flexibilities we take for granted today”, says Kate Smith, head of pensions at Aegon.
Her comments have been backed up by Mark Stopard, head of product development at Partnership, who says A-Day may not have made pensions simpler, but he agrees the freedoms we have now were a result of the 2006 changes.
“Without A-Day, it would be hard to imagine government would be in a position to introduce the pensions freedoms.
“While it may not have encouraged universal pension saving, it certainly paved the way for change. Yet this change means people must take more responsibility and early signs from the pension freedoms are we need to find more ways to help people through their choices and options.”
Alistair McQueen, retirement and pensions manager for Aviva, also believes A-Day helped get people thinking about, and acting upon, their need to save more for retirement.
He says: “It needs to be remembered the focus of A-Day was the simplification of the pension tax rules, not the simplification of all things pensions. It would be unfair to judge A-Day against this grander (and never intended) latter goal.
“In the 10 years since A-Day we have seen a revolution in the pensions market. Auto-enrolment has brought pensions to millions of workers; the rules that restricted our options at retirement have been torn up; and a new state pension will replace one which had nurtured over 70 years of ever-growing complexity.
“In short, the foundation we can expect from the state is clearer; the benefit we can expect from our employer is clearer; and the rules we must follow at retirement are clearer (or non-existent).”
The workplace environment has indeed proved more successful, but this may owe less to A-Day than to the introduction in 2012 of auto-enrolment (AE).
According to the Department for Work & Pensions (DWP), up to the end of September 2015, more than 5.47m workers have been automatically enrolled by more than 60,000 employers.
This is an increase of more than three million on 2012.
Richard Parkin, head of pensions for Fidelity International, explains: “While AE has boosted coverage among the employed, the self-employed remain poorly covered in terms of pension saving.
There is a long way to go in terms of contribution rates. AE will only provide a basic level of additional pension Richard ParkinHe adds the anticipated higher 8 per cent contribution rate - which could see its implementation delayed until 6 April 2019 - will still not be enough to help, as the average rate needed for most people is “more likely to be around 15 per cent of earnings”, Mr Parkin adds.
David Sinclair, director of the International Longevity Centre – UK, says: “Ten years on from the final Pension Commission report, we see more people saving due to the success of auto-enrolment. Now is the time to build on this success.
“However, almost half of those working later than they hoped are doing so because they haven’t saved enough.
“While we have more people saving, the levels are woefully inadequate, particularly given we are living longer. Investment returns remain relatively low so even those who are saving aren’t getting the return they hoped for.”
| Working longer and workplace pensions |
John Cridland, a former chief executive of the Confederation of British Insurers has been tasked to lead a review into the state pension age (SPA). The review, which will make its recommendations by May 2017, is exploring further increases to state pension age, meaning future pensioners should be prepared to need to work longer. Part of the SPA’s terms of reference, published on the government’s website, will be to determine: ■ What a suitable State Pension age is, in the immediate future and over the longer term; ■ Whether the current system of a universal State Pension age rising in line with life expectancy best supports affordability, fairness, and fuller working lives objectives; and ■ If not, how State Pension age arrangements might better support these objectives. Over the past four years, up to the end of September 2015, more than 5.47m workers have been automatically enrolled by over 60,000 employers. National Employment Savings Trust membership, as of the end of March 2015, stands at 2m members with 14,000 employers. Data, collected with reference to April 2014, shows the number of eligible employees participating in a workplace pension rose to 13.9m (70 per cent), an increase of 3.2m since 2012. Between January 2016 and March 2018, the number of employers reaching their staging date will average more than 100,000 a quarter, reaching 200,000 in the first few months of 2017. According to a report from the DWP at the end of 2015: “Once fully implemented, automatic enrolment aims to increase the number of individuals newly saving or saving more in a workplace pension by around 9m, and increase the amount being saved in workplace pensions by £15bn a year, within a range of £14bn to £16bn.” Source: Gov.co.uk/DWP |
Mike Morrison, head of platform technical for AJBell, agrees workplace savings are a “positive step” but warns contribution levels are still too low.
He adds: “There is a question mark over whether default funds will be delivering consistent returns. There is also the danger the new Lifetime Isa (Lisa), with the attraction of the funds being available for a house purchase, increases opt-out rates within workplace pensions.
“This could seriously undermine all the good intentions of auto-enrolment.”
