PensionsJan 26 2023

DWP to announce DC reforms amid cost-of-living crisis

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DWP to announce DC reforms amid cost-of-living crisis
Photographer: Chris Ratcliffe/BloombergPedestrians walk along Whitehall, past the gated entrance to Downing Street in London.
ByMaria Espadinha

The Department for Work and Pensions will be announcing a series of reforms to defined contribution saving, in an attempt to curtail the impact of the cost-of-living crisis.

Pensions minister Laura Trott has invited a number of pensions professionals to attend a meeting on 30 January, where she will be presenting the measures.

In an email seen by FTAdviser, Trott said: “We are conscious of the cost-of-living challenges people are facing and the impact this has on their ability to save for retirement.

“The department is launching a package of measures to ensure for those who are able to put away some their hard-earned cash, pension schemes are providing them with the best value for money.”

Despite auto-enrolment opt-outs and cessation rates remaining stable, according to the latest figures from DWP, pensioners and savers approaching retirement are facing economic challenges.

According to the Pensions and Lifetime Savings Association’s retirement living standards update, published on January 12, retirees trying to achieve a basic standard of living will have seen their expenditure increase over the past year by almost 20 per cent due to high inflation.

This is due to a higher proportion of their budget going towards the things that have risen the most in price: food and energy.

The Pensions Regulator itself has said savers must be supported during current economic volatility amid concerns the value of some DC has fallen.

The watchdog published guidance earlier in January where it stated that while those who are early in their saving journey can take a longer-term view on their investments, savers who are close to retirement could be impacted, depending on the investment strategy of their scheme.

What to expect from the reforms

The new reforms will be announced after DWP refused to commit to increasing minimum auto-enrolment contributions, despite acknowledging that the current statutory contribution of 8 per cent is “unlikely to give all individuals the retirement to which they aspire”.

In its response to recommendations made last year by Work and Pensions committee in its report on savings for later life, DWP said it is committed to its current timeline and will bring forward legislation “at a suitable opportunity and when parliamentary time allows”.

AgeWage chief executive Henry Tapper said: “Having been told earlier in the week that the DWP does not intend to solve problems with adequacy by demanding higher contributions from employers and savers, it looks as if the emphasis will be on making more of what we’ve got. Which is fine by me.

“Asking people to save more when they are earning less is madness, finding ways to pay better pensions from the money they’ve saved – makes a lot of sense.”