This is one of the main conclusions of the Pensions Policy Institute’s first UK Pensions Framework report, which analysed the UK pensions system against the three key objectives of adequacy, sustainability and fairness.
On sustainability, changes made to the system, such as the shift from defined benefit to defined contribution schemes and the new state pension flat rate, are having a net positive impact.
Nevertheless, it remains sensitive to ongoing risks associated with population ageing, economic factors and economic inactivity, as well as system design issues relating to complexity and data, the report stated.
The picture for adequacy is mixed, but the overall outlook is somewhat negative, it noted.
Despite improvements in retirement income, pensions coverage and employment, and income improvement in the lowest income households due to the new state pension, there are “risks to adequacy and financial security in later life”.
Among these are low levels of DC contributions, slow earnings growth, low financial resilience and limited support for decision-making, as well as the relatively low level of the state pension and benefits for those who depend on them for the majority of their income.
On fairness, the differences in retirement outcomes continue to have a net negative impact, the report stated.
These include issues such as the access that people have to different forms of retirement saving, the extent to which they are connected with their pensions and able or supported to make optimal decisions, the protection they have from risks in retirement, and widespread resulting income inequality in later life.
Launched in 2021, the UK Pensions Framework aims to support evidence-based policymaking by documenting how changes in the UK pensions landscape are impacting multiple areas of society over time.
PPI research associate Anna Brain said: “Our findings show a clear pattern. Important and necessary changes designed to offset the impacts of population ageing and economic change in the UK pensions system, such as the shift to DC in the private sector and the introduction of the new flat-rate state pension, are helping to improve sustainability by lowering the cost of providing pensions.
“However, they also leave people increasingly exposed to the growing likelihood that the income and savings they have may not meet their needs in later life, and the challenges people face are not felt equally.”
Brain noted that although risks to financial sustainability “have by no means disappeared, they are being somewhat superseded by risks to individuals of continuing income inequality in retirement and of under-saving, despite high levels of pensions coverage”.
She pointed out that “across the population more people are saving, but not necessarily saving adequately for later life”.
“For many, challenges are also compounded by policy design, which has created a more straightforward state pensions system but a more complex private pensions system, with little support for difficult decisions that need to be made around how much to save or how to access savings,” she added.
Maria Espadinha is editor of Pensions Expert, FTAdviser's sister publication
