DWP papers and announcements

Commenting on the documents and papers announced by the DWP ahead of Phase Two of the Pensions Review, Hannah English, Head of DC Corporate Consulting, Hymans Robertson says:

“The release of today’s DWP research papers on the Gender Pensions Gap, the Future of Retirement Incomes and Analysis of AE saving levels amongst other updates, supported by the launch of the Pensions Commission, are a significant step forward by the government. Both, as a move to transform the existing pensions landscape and address current under-saving for retirement. It concludes a period of extremely significant pension changes with the Pensions Investment Review and launch of the Pension Schemes Bill amongst other regulatory changes in the last few months.
 
“The Analysis of Future Pension Incomes 2025 paper highlights significant under-saving across nearly half of all working people; 43% of savers are not expected to meet their Target Replacement Ratios in retirement, increasing to 46%, if they must allow for housing costs, representing c15m individuals. This is unacceptable, and we welcome a review into improving such levels of under-saving.
 
“The DWP analysis notes there are many measures that can be used to assess what an adequate income might be for individuals in retirement but does not provide an answer. We would strongly encourage that this is better defined within the remit of the Pensions Commission, so that the wider pension industry can have clearer guidance on what individuals should be aiming for. Whilst the Retirement Living Standards have been a success in helping savers consider the levels of expenditure they may need in retirement, we caution about the lack of housing costs in such standards. Primarily, this is because considering any assessment against these in isolation, paints a rosier picture than will be the reality for many individuals once they reach retirement. We encourage the Pension Commission to consider whether pensions can be used to address the growing numbers of renters in retirement, which is something we strongly support and highlighted in our recent paper Untapped Potential for Pensions.
 
“Rightly so, the DWP analysis supports and highlight the success of auto-enrolment (AE) in getting more people into saving and thinking about their retirement. However, it also shows that average contribution rates have declined since the rollout of AE, combined with the shift from DB to DC. Of particular concern is the gaps in gender pension savings levels which remain stubbornly high with a 48% median Gender Pensions Gap amongst 55-59 year olds. We would encourage the government to review the entry age criteria and lower the earnings limit as soon as possible; the Pensions (Extension of Automatic Enrolment) Act 2023 gave the Secretary of State the power to a) reduce the lower age limit for auto-enrolment from 22 to 18 and b) remove the Lower Earnings Limit for qualifying earnings.
 
“As a firm, we believe reducing the lower earnings limit would particularly help lower earners, often women, to save more into pension as a proportion of their income. Whilst the reducing the age limit would not only support all savers to save more into pensions and retirement, it could also help reduce the gender pensions gap further. It would allow female employees the chance to save more over a larger proportion of their working career. In effect, this would avoid the dramatic fall often as a result of taking time out for child care or other caring responsibilities, which often fall to women later in life. All of which sees their pay and savings levels drag behind male peers. The government doesn’t need to wait 18 months for the outcome of the Pensions Commission to enact this, and we would encourage such measure to be introduced sooner rather than later to start addressing common reasons for under savings today.
  
“Whilst not covered in the analysis release today, we’d encourage the government and Pensions Commission to extend auto-enrolment to all workers. This can help achieve retirement adequacy and narrow the pensions gender gap. Removing the £10,000 earnings threshold would make an additional 1.2m women and 328,000 men eligible – a significant step forward in the challenge of ensuring a good retirement for all.”