Celebrating 10 years of The People’s Pension

I can clearly remember the day The People’s Pension went live to our members – it was also the day that I started in my role as Chief Executive.

Since that nail-biting experience 10 years ago, we’ve been on an incredible journey which has seen us become one of the biggest workplace pension providers in the UK, helping nearly 6 million members to save almost £18 billion for their futures.

In an organisation like ours, we’re focused on looking forward, but sometimes it’s good to look back. This anniversary has given me time to reflect on what we’ve achieved and there is plenty for us to be proud of.

I had the opportunity to talk to Jonathon Stapleton, Editor of Professional Pensions about this – you can watch a clip below where he asked me about The People’s Pension’s auto-enrolment journey over the past decade…

Extraordinary growth from a compelling proposition

I’m not sure I ever thought that the auto-enrolment policy or The People’s Pension would be as successful as they have proven to be. But it was clear early on that that our experience, value driven proposition and quality of service, together with our not-for-profit status enabled us to deliver a compelling proposition to market, to address the challenge of auto-enrolment.

The growth we experienced in the early days was extraordinary – I remember one day when we took on over 1,000 employer customers – and since then, we’ve continued to grow at a consistent rate.

A decade of success

This success has largely been down to our unflinching focus on what is right for the members and putting people above profit; a fact demonstrated by the closure of our B&CE legacy schemes. Moving those pension savers into The People’s Pension, represented better value because the cost of the older scheme’s charges were higher, and the returns are potentially greater for members of the bigger scheme.

The success that we continue to enjoy is also down to the hard work of colleagues past and present. I’m incredibly proud and grateful to them, for everything we’ve achieved together over the past decade.

Continuing to learn and grow

Of course, there have been many challenges along the way, primarily around onboarding so many members and employers, but it has also been tremendously rewarding, especially when we know there is so much more to come. Although 10 years is a significant landmark, it’s only the beginning of our journey to ensure that our millions of members have the means to fund the retirement they deserve.

We’re aware that there’s so much more we can do to support that journey and help our members – now 1 in 5 workers in the UK – to build those financial foundations for life. We’re still at the starting line and are committed to delivering a pension proposition which will continue to evolve and develop with the needs of our membership.

And we continue to grow as an organisation. Our ambitious recruitment plan has seen us add valuable experience to improve the outcomes for our membership. We’re also investing in technology which will meet consumer demands for easily accessible digital products. And we’re getting ready for pensions dashboards, which will really change the pension landscape for the nation’s retirement savers.

Helping members to make the right decision

As we mature, so does our customer base – it won’t be long before an increasing number start making firm plans for life after work. This is a key area of our development and one where there’s an increasing need to provide guidance and support to enable members to make the right decision for them.

Of course, our success so far has been achieved in sync with that of auto-enrolment, which is a shining example of what a successful government policy looks like. We will continue to work closely with policy makers and industry partners to ensure we build on its success and enable even more workers to save for their retirement.

57% of people aren’t saving enough

Our recent research, conducted with the Pensions Policy Institute (PPI), shows that 54% of households and 57% of individuals have not saved enough and are not saving enough. When economic circumstances allow, the government should commit to a plan to implement the Automatic enrolment review: 2017, reviewing auto-enrolment contribution rates over the longer term. Because the consensus is that 8% of banded earnings isn’t enough for people to achieve the retirement income they need.

A fair pension for everyone

One thing our members can be sure of is that we’ll continue to push for more fairness within pensions, because we believe that every worker should have access to a good quality pension, when they want one.

Nobody can predict the future, but I expect the next 10 years with developing pension policy and embedding saving through auto-enrolment will continue to throw up a challenge or two, but one that we at The People’s Pension are fully up for taking on.

More than half of UK households aren’t saving enough for retirement

More than half of households in the UK aren’t saving enough to maintain their work life living standard in retirement, finds new analysis from the Pensions Policy Institute (PPI) and B&CE, provider of The People’s Pension1, which provides workplace pensions to almost 6 million people across the UK.

Giving evidence to the Work and Pensions Select Committee today (Wednesday, April 27th), the director of policy for B&CE, Phil Brown, said that their initial findings, using data from the latest Wealth and Assets Survey2, show that 54 per cent of households and 57 per cent of individuals have not saved enough and are not saving enough, to meet the replacement rates3 set by the Pension Commission in 2004.

The new analysis suggests that while the first ten years of auto-enrolment have successfully reversed the decline in workplace pension saving in the UK, a pension adequacy problem remains. The current minimum contributions of 8 per cent, with a minimum 3 per cent contribution from employers, are not sufficient to provide adequate incomes in retirement.

The full findings of the report will be published in early Summer, but B&CE revealed that even if you take additional capital and housing into account, more than a third of households and individuals still won’t have enough to maintain their current standard of living.

Commenting, Phil Brown, said:

“Automatic enrolment is a success story that has reversed the decline in workplace pension saving across the UK, but the reality is that people still aren’t saving enough. At a time when the cost-of-living crisis is worsening and people are dealing with difficult financial decisions every day, the UK faces a tough choice.”

“Whilst it wouldn’t be right to raise saving rates in the current economic climate, we can’t ignore that people are not saving enough to live on in retirement. This year, as auto-enrolment turns 10, it’s time to renew conversation about how automatic enrolment should evolve once the cost-of-living crisis has abated, to ensure it reaches its full potential. It’s our role to provide evidence but politicians, trade unions and employers need to take the lead.”

Lucy Davies, 36, lives with her husband and son in Southsea, Hampshire, where she works as a part-time gallery assistant, alongside running her own calligraphy business. Contributing the minimum to her pension, she’s concerned she won’t have enough to live on when she stops working.

“It’s so difficult. I know saving for the future is important, but the reality is that I have bills to pay now – bills that are only increasing. Childcare alone is a huge monthly outgoing so contributing any more than the minimum isn’t an option for me at the moment. It’s easy to put off thinking that far in the future, but if I’m honest, right now, I’m not sure I can see a point where we’ll be able to afford to completely stop working.” 

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Millions face a ‘basic’ retirement as they make minimum contributions

Millions of people across the UK wrongly believe they’re saving enough for retirement because they’re contributing the amount required by Government, finds new research from B&CE1, provider of The People’s Pension2.

Its new report, Pension Adequacy: A Pension Saver’s Perspective3, shows that in the tenth year of auto-enrolment, more than half (57%) of auto-enrolment pension savers are making the minimum employee contribution4 that is required by law, and almost two thirds (65%) are receiving the minimum contributions from their employers. The research shows that, in many cases, auto-enrolment contributions are people’s primary source of savings.

The minimum contribution rate of eight per cent of band earnings is likely to only provide a ‘basic’ level of retirement, according to the Pension and Lifetime Savings Association’s Retirement Living Standards5, which outline that savers will need £10,900 for a basic level of retirement, £20,800 for a moderate level of retirement and £33,600 for a comfortable level of retirement for a single person.

Yet the research, conducted by Ignition House, found that just seven per cent of savers are aware they’re only saving enough for a ‘basic’ retirement; the rest foresee a ‘moderate’, or even ‘comfortable’, retirement. Worryingly, four in ten people believe that because the contribution rates have been set by the Government, they are saving enough6.

Commenting, Phil Brown, director of policy at B&CE, said:

“For most workers across the UK, saving something for retirement is better than saving nothing at all – particularly considering your employer also contributes. But we can’t escape the fact that millions of hardworking people are not saving enough for the level of retirement they expect. Affordability obviously plays a role in this, but the research is clear that in most cases, people believe that because they’re saving what they’ve been told to by those who run the country, they’re saving enough.”

The Pension Commission, in 2005, reported that contributions around 16 per cent of band earnings would be required to reach an adequate retirement income, around two thirds of someone’s pre-retirement earnings. It was thought half of this would come from auto-enrolment, and the other half from additional voluntary saving.

However, almost half (43%) of all savers haven’t considered paying more into their pension, almost half (46%) did not know they were allowed to pay in more than the minimum, and two-thirds (64%) of people only had less than £10,000 in additional savings.

Today, B&CE, provider of The People’s Pension, which serves almost 6 million people across the UK, is calling on the Government to set out plans for a review of the minimum contributions required for auto-enrolment and to outline a timeline for implementing the recommendations of the 2017 automatic enrolment review, once economic circumstances allow, which call for workers aged 18 and over to be covered by auto-enrolment, and for contributions to count from the first pound earned.

While there is growing evidence that the minimum contribution needs to increase, the leading pension provider is warning that careful consideration must be given by Government as to whether this is the right course of action, and if so, what level they should be set at and who should shoulder the burden of an increase – the employer or employee.

While low contribution levels are, in part, due to a lack of saver awareness, a substantial proportion of pension savers are already struggling to cover their day to day living expenses and are worried about the rising costs of living.

Fifteen per cent of pension savers reported that they have fallen behind on, or missed, at least three payments for credit commitments or domestic bills in the last six months and 15% are constantly overdrawn by the time they are paid.

Against a backdrop of rising energy costs and inflation, almost half of savers felt that they would need to opt out if employee contribution rates were set any higher, and many savers felt employer contributions should at least match what the employee currently pays.

Melissa Staunton, 30, from Crawley, said: “I don’t have a plan for retirement, and I have a little bit of savings, but not much. If the minimum contribution was to go up, I don’t think I would be able to afford it at the moment.”

Meanwhile, Amber Maidment, 28, from West Sussex, said: “In total, I am paying nearly £100 a month into a pension – that’s a lot of money for me and I am happy with that amount, because it’s going into a savings pot for when I’m older. I didn’t know that you can save extra into your work pension, but I couldn’t really afford to save any more than what I am doing.”

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Pension Adequacy: The Pension Saver’s Perspective

Attention is now turning to whether statutory minimum contribution rates, currently set at 8% of band earnings (including tax relief) are sufficient. As far back as 2005, The Pensions Commission thought that 16% of band earnings was the minimum required to reach a target replacement rate of two-thirds of pre-retirement earnings for a minimum earner. 8% was to come from AE with the other half coming from additional savings.

There is a growing consensus that an increase in minimum contributions would lead to an improvement in saver outcomes.  However, little work has been done to date to explore what savers think of current levels, or if savers are even aware they’re expected to save more? Can they accurately assess how much they will need to have saved for a ‘moderate’ or ‘comfortable’ lifestyle? And what do they feel the appropriate response from the government and pensions industry would be?

Our research, which involved talking to people aged 22-55, shows that millions of savers are making the minimum contribution to their workplace pension while a significant proportion don’t have significant savings.

Download our Pension Adequacy: The Pension Saver’s Perspective report

Mandatory single charging structure could cost membership millions, warns The People’s Pension

The membership of one of the UK’s largest workplace pension schemes could miss out on millions of pounds, with many individual savers potentially losing thousands from their pension pots, if the Government bans auto-enrolment pension providers from using combination charging structures.

B&CE1, provider of The People’s Pension2, has issued this stark warning ahead of anticipated proposals by the Department for Work and Pensions3 which could see all auto-enrolment pension providers forced to introduce a single, flat annual management charging structure.    

The not-for-profit scheme, which provides auto-enrolment pensions to more than five million workers across the UK, uses a combination charging structure to give money back to its members the more they save.

Its charging structure consists of three components:

  • an annual charge of £2.50 – equivalent to 21p a month
  • a management charge of 0.5% of the value of a member’s pension pot each year
  • a rebate on the management charge, giving back between 0.1% on savings over £3,000 and 0.3% on savings over £50,0004

Already, The People’s Pension gives more than a million pounds back to its members every month. As automatic enrolment matures, the number of people benefiting from the rebate on the management charge will grow considerably as will the amount given back, with its total membership projected, based on current calculations, to receive around £34.5 million a year in just five years’ time.

Based on the current combination charging structure, the average earner, saving over their working life with The People’s Pension, could see their lifetime annual management charge eventually fall by more than half to just 0.23%.

But if the Government makes this anticipated move, the pension provider has warned that a saver like this, could potentially lose out on almost £27,000 – around an additional three years’ retirement income.5  

The pension provider has also warned that implementing a universal charging structure only for automatic enrolment pension providers could distort the market, put millions of people saving through auto-enrolment at a disadvantage, and cause pension providers to increase their charges for all members.

Patrick Heath-Lay, CEO of B&CE, said:

“As a not-for-profit organisation, the rebate is an example of how we’re using the money we make to directly benefit our members, helping them to save thousands more towards their future.

“We believe that banning combination charging structures like ours would be a backwards step as it will remove incentives for saving more towards retirement and will unfairly target savers in workplace pension schemes.

“We’re very proud of the fact that we already give back £1 million a month – a figure only set to increase – and we think that it’s only fair to our members that we’re able to continue to do so in the future.”

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Savers are at risk of losing out if Value For Money framework is not included on pension dashboards

B&CE, provider of The People’s Pension1 which serves 1 in 6 workers across the UK, has warned that savers are at risk of losing out if the proposed Value For Money (VFM) framework is not included on pension dashboards.

New research2 from the leading pension provider has found that more than two out of five pension holders (43%) are likely to move their savings from one pension provider to another if they could do so via a website that allowed them to see all their pensions in one place. But more than four in 10 (45%) wouldn’t know what to look for when switching pension providers, which risks them making a decision which could lead to a poorer retirement outcome.

When asked what would influence their decision if choosing to move providers, more than a third of pension savers (36%) said saving money on charges would be a factor, 34 per cent would be swayed by the rate of return promoted by the pension fund, and more than one in 10 (12%) would consider moving to a company with a better website or app.

Following the recent launch of the Government’s consultation of the draft Pension Dashboards Regulations3, B&CE believes that the Value For Money Framework4, currently in development by the FCA and TPR, should be included on pension dashboards to ensure savers have transparent and comparable information before making a decision. It is also calling for the new VFM regulations to be applied to the retail market as well as workplace pensions, following research from The Pensions Policy Institute (PPI) which found a significant charging gap between members of uncapped retail schemes and capped master trusts5.

Commenting on the research findings, Phil Brown, director of policy at B&CE, provider of The People’s Pension, said:

“The Government’s recent announcement detailing further regulations for pension dashboards will allow the industry to take the next big step towards making this hugely important innovation a reality. Our research shows that seeing all their pensions in one place may make it more likely for savers to transfer their savings to one provider, but they have little idea of what to look for to make the best decision for them.

“It’s vital for the FCA and TPR’s Value For Money framework to be clearly displayed on the platform, otherwise savers will not know for sure what’s the right move for them. Pension dashboards have the potential to revolutionise pension saving but this will only happen if consumers are provided with complete transparency.”

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Why it’s good to keep talking about auto-enrolment reforms

At the start of this year, while much of the nation was packing away its Christmas decorations, a ‘Private Member’s Bill’ was launched in Parliament. This reignited the debate around reforming auto-enrolment.

Richard Holden, the Conservative MP for North West Durham, outlined his proposal for helping younger workers save for their retirement. His is an unusual Bill because it consists almost entirely of things that the government committed itself to in 2017, following the publication of the ‘Automatic Enrolment Review’, but has yet to set a timetable for.

Auto-enrolment has been one of the most successful policies of the last 10 years, bringing more than 10 million people into workplace pension saving. According to figures from the Department for Work and Pensions, auto-enrolment currently adds an additional £28.5bn to the UK’s retirement savings every year. But it could be improved further to make sure it reaches its full potential. That means widening it, so it benefits younger workers, women and people from ethnic minorities.

The Bill focuses on widening the policy to workers over the age of 18 and increasing the proportion of earnings that people save. Currently, people between the age of 18 and 21 are not automatically enrolled into a workplace pension. Although many can opt into pension saving, many don’t and miss out on the employer pension contributions they are entitled to as a result.

Why reform of auto-enrolment is needed

Lowering the age at which people are automatically enrolled from 22 to 18 makes sense for 2 reasons:

  1. First, if people start saving earlier then they could retire earlier.
  2. Second, 22 is a legacy from a time when the age for pension saving through auto-enrolment was the same as the age people were entitled to the full rate of the National Minimum Wage. The rules for the minimum wage got changed but not the rules for pension saving. Tidying this up is good policy housekeeping.

The Bill, which will go before the House of Commons again in late February, includes a second policy change, also itself a government proposal. In 2017, the ‘Automatic Enrolment Review’ proposed scrapping the lower earnings threshold. This means that pension contributions would count from the first pound earned rather than the current threshold of £6,240.

The Pensions Minister, Guy Opperman, reaffirmed the government’s commitment to implementing these reforms with a target date of the ‘middle of the decade’ often being floated. This measure will dramatically increase the pension saving of people in part-time work, younger workers and others in low-paid jobs.

Reform timetable must consider wider economic circumstances

While we’ve consistently called on the government to set a timeline for the introduction of the already promised proposals, we do understand that changes such as these cannot happen overnight and should only be implemented once the post-pandemic economic recovery is complete. We are acutely aware of the very real pressures facing millions of households right now as inflation and every day costs continue to rise. And we realise that there must be a ‘right way’ for such proposals to be implemented.

We think that it makes sense to lay the legislative groundwork for these reforms now and then gradually implement them to manage their post-pandemic impact. If this isn’t done, we potentially risk undermining the success of auto-enrolment. The policy was phased in over a period of years and there’s no reason why the same approach cannot be adopted for improvements to auto-enrolment.

Growing workplace pension pots are a recipe for greater government scrutiny

It’s fair to say 2021 was not a vintage year for many things, but for consultations it was a bumper twelve months. A bumper twelve months for consultations – not only in quantity, but in complexity and the operational demands that policymakers intend to make of pension providers.

It would be tempting to imagine this was mere chance and that this level of activity might reduce – but this, I think, would be extremely optimistic. It is unlikely that we have even reached the highest tide of intervention yet.

This is because workplace pensions are starting to become genuinely significant. Not just for the delivery of future income in retirement but also as flows of investment. Government departments other than the Department for Work and Pensions (DWP) are eyeing up what pension funds could be used to achieve. So far, we have seen a tentative move to encourage pension funds to increase their investments in infrastructure by amending rules relating to performance fees and the price cap. We’ve also been required to help combat climate change by putting in place processes to identify and mitigate climate risk.

Reforms on the horizon

At the same time, the UK continues to pursue a raft of reforms designed to increase engagement with pensions and the value for money obtained by savers. These reforms could be seen as gradually retro fitting the UK pension system while in-flight. Gradually taking us to the place it would, in an ideal world, have been rational to start from, when designing a mass DC-based pension system more than a decade ago.

These reforms include the continued promise of contribution increases, requirements around annual statements and dashboards, pursuing an efficient system for the consolidation of small pots, and the push for smaller schemes to consolidate unless they can demonstrate that they deliver value for money.
There are many wider government policies which could have some degree of impact on workplace pensions, meaning it is very important that the bigger picture is considered with retirement savers’ needs at the heart of any long-term strategy.

The consequence of not having a longer-term strategy in place is less civil service resource being applied to testing a proposition, and thus a greater likelihood of ill-thought through policies. In the pursuit of the short-term advantage drawn from newspaper headlines, there is every chance a policy designed to achieve something else altogether, may be casually allowed to damage the first objective of pensions – which is to provide retirement income.

The interest of departments other than the DWP in the sums held by pension schemes is unlikely to abate. A consequence of Brexit is historically low flows of foreign direct investment. The long-term consequence of Brexit is also lower government revenues than would otherwise have been the case. Simultaneously, the pressures on the UK government to do more to deliver on net-zero will also increase. This is because there is currently very little substance behind its ambitions to deal with the two main causes of UK carbon emissions and deliver either a full roll out of electric vehicles or to deliver a replacement for the domestic use of natural gas. It’s difficult to predict what it will do if it has to deliver last-minute crash investment programmes.

The growing importance of DC pension pots

We are also inexorably moving towards the time when retiring generations are no longer relying on defined benefit (DB) pensions. This will inevitably mean that defined contribution (DC) pensions will become more salient for individuals as part of their pensions. We already know how powerful the politics of the State Pension are in the UK. The intention behind workplace pensions was that mass DC would become the vital bolt-on to the State Pension. We can suppose that in a similar fashion, mass DC will come to hog the headlines too; unsurprisingly, as for most of the population, the DC pension will become the difference between something better or retirement on the poverty line.

We are not yet at the stage where workplace pensions feature as the centrepiece of electoral platforms. More established workplace DC regimes, like that in Chile, are already there. However, we can already see the forces that will propel us in that direction. 2021 was busy, the rest of the decade will be too.

Landmark anniversaries show how far an industry has come

In 2022, The People’s Pension and auto-enrolment will be 10 years old and we’ve both come a long way in that time.

The People’s Pension now has 5.6 million members and more than £16 billion of assets under management. We’re a core provider in a system which has brought more than 10 million workers in the United Kingdom into pension saving – something that was a dream just a decade ago.

Like many other national workplace pension saving systems, the UK’s auto-enrolment regime is still being refined as it matures. The government has either promised to enact or is considering a range of changes in 2022, which will impact on pension schemes and their members. There are other items which are at the review stage. We also think there are a couple of areas where the government and regulators need to look at how recent rules are being implemented in practice.

Timetable for reforms is needed

The government has promised to change some of the initial auto-enrolment rules to ensure that employees save more towards their retirement. These amendments would lower the age limit for auto-enrolment to 18 and calculate people’s pension contributions from the first pound they earn.
We’re also calling on the government to lower the £10,000 earnings trigger to the lower earnings threshold for National Insurance – of £6,240 – to help 1.3 million more people, the clear majority women, save through auto-enrolment. We hope that during 2022 the government will set out its timeline for making these improvements.

The DWP will also need space in the legislative calendar to pursue another major pension reform. The minister has rightly been pressing workplace pension providers to come up with a low-cost consolidation system for small pots. The outline of such a system is now available. To be made operational, however, it needs the DWP to put in place a statutory framework. Two areas which are not yet ripe for any rule changes but will be under review in 2022, are annual statements and retirement products in workplace schemes.

Learning lessons from abroad

Our wish list for items we would like the government and regulators to look at in 2022 also includes enforcement of value for money and greenwashing investments. The first would, of course, only follow once the government concludes its current work on how to measure it. But the lesson from Australia is that value for money rules only start to have an impact on the market once the pension regulator begins to check that it is being applied rigorously.

Pension schemes are also required to play an important role in combatting climate change. However, without better guidance as to which kinds of investment are genuinely sustainable, there is a risk that competition could drive down standards. Some schemes may be tempted to undertake superficial activity to signal green credentials to customers, where the investment risks releasing increased amounts of carbon in the future.

We look forward to celebrating the two significant anniversaries in 2022, while continuing to work to make the saving experience easier and more attractive for employees.

All DC pensions should be included in proposed value for money framework, urges B&CE following new PPI report

B&CE, provider of The People’s Pension1, has today backed plans for new value for money regulations to be applied to the retail market as well as workplace pensions, following new research from The Pensions Policy Institute (PPI)2.

The PPI’s latest report, What is the impact on member outcomes of different non-capped charging structures?3, looks at the effect that different charging structures could have on pension savers. The research concludes that while average pension savers are neither engaged or motivated by what they are charged, there is a charging gap between members of schemes that are subject to the charge cap and those who are customers of uncapped schemes.

B&CE believes that the intention from The Pensions Regulator (TPR) and the Financial Conduct Authority (FCA), for a new framework to assess value in both workplace and retail pensions, is the right way forward. The leading workplace pension provider believes savers should have a clear idea about how different pension schemes and products compare and, while charges are very important, this should be broader than charges.

Phil Brown, director of policy and external affairs at B&CE, provider of The People’s Pension, said:

“This research shows how significantly charges can impact retirement incomes. With charges generally lower in workplace pensions than in retail, for many people thinking about transferring out of lower cost workplace pensions, it would be better to stay put.

“But value for money is about more than just charges. The FCA and TPR are right to propose a value for money framework that covers all of DC pensions, as savers should be able to examine the value for money offered by both workplace and retail pensions. It will be tough to fine tune, but it will provide real transparency to both professionals and savers.”

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