Treasury reportedly blocks adequacy part of Pensions Review
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The government has reportedly put the adequacy part of its Pensions Review on hold indefinitely, following a backlash from employers to higher national insurance contributions, which came on top of a higher minimum wage.
Part two of the pensions review is due to look at the adequacy of the UK’s pensions system, with many in the industry hoping this could finally result in higher minimum contributions, particularly from employers, who may contribute as little as 3%.
However, the Financial Times reported on Saturday that it has been told by the Department for Work and Pensions the second phase of the review will now not be launched this year because chancellor Rachel Reeves has blocked it.
Part two of the pensions review is due to look at the adequacy of the UK’s pensions system, with many in the industry hoping this could finally result in higher minimum contributions, particularly from employers, who may contribute as little as 3%.
However, the Financial Times reported on Saturday that it has been told by the Department for Work and Pensions the second phase of the review will now not be launched this year because chancellor Rachel Reeves has blocked it.
mallowstreet understands there could be a written ministerial statement later today to clarify the timescales among others.
A government spokesperson said: “Creating wealth and driving growth is at the heart of our Plan for Change. We are determined to ensure that tomorrow’s pensioners are supported, which is why the government announced the landmark two-stage Pensions Review days after coming into office and why the Pension Schemes Bill was in the King’s Speech.”
The spokesperson noted that the interim report of the review was published in November, saying the final report will be published in the spring, and added: “Government will set out more details on the second phase in due course.”
The review phase looking at adequacy was seen by the pensions industry as an opportunity to set out a roadmap for auto-enrolment increases, which have been left at low levels since the roll-out ended in 2018.
However, the Treasury’s move to ‘tax jobs’ has riled employers, many of whom had felt reassured before the election that Labour would be business-friendly. It has also made any mandatory pension contributions increases less likely as businesses say they are struggling to invest amid higher taxes and continuing high interest rates.
With business confidence shaky, some are now fearing economic contraction. Speaking to the BBC’s Laura Kuenssberg on Sunday, the chief executive of recruitment firm Reed warned that a recession could be around the corner based on the number of vacancies advertised.
If pensions adequacy for millions is once more being kicked into the long grass, it would be a blow for the pensions industry.
Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association, said the association is hopeful that phase two of the review can stay on track and that 2025 will be the year in which a positive course will be set for savers’ future financial security.
“PLSA has long argued that eligibility for automatic enrolment must be widened, and that contributions from both employers and employees must be gradually increased, so that saving at 12% of total earnings becomes the norm,” she said.
Yvonne Braun, director of long-term savings policy at the Association of British Insurers, which represents pension providers, said the Pensions Review should address not only investment and scale but the UK’s pension savings crisis, the state pension age and consumer decision making.
A government spokesperson said: “Creating wealth and driving growth is at the heart of our Plan for Change. We are determined to ensure that tomorrow’s pensioners are supported, which is why the government announced the landmark two-stage Pensions Review days after coming into office and why the Pension Schemes Bill was in the King’s Speech.”
The spokesperson noted that the interim report of the review was published in November, saying the final report will be published in the spring, and added: “Government will set out more details on the second phase in due course.”
The review phase looking at adequacy was seen by the pensions industry as an opportunity to set out a roadmap for auto-enrolment increases, which have been left at low levels since the roll-out ended in 2018.
However, the Treasury’s move to ‘tax jobs’ has riled employers, many of whom had felt reassured before the election that Labour would be business-friendly. It has also made any mandatory pension contributions increases less likely as businesses say they are struggling to invest amid higher taxes and continuing high interest rates.
With business confidence shaky, some are now fearing economic contraction. Speaking to the BBC’s Laura Kuenssberg on Sunday, the chief executive of recruitment firm Reed warned that a recession could be around the corner based on the number of vacancies advertised.
If pensions adequacy for millions is once more being kicked into the long grass, it would be a blow for the pensions industry.
Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association, said the association is hopeful that phase two of the review can stay on track and that 2025 will be the year in which a positive course will be set for savers’ future financial security.
“PLSA has long argued that eligibility for automatic enrolment must be widened, and that contributions from both employers and employees must be gradually increased, so that saving at 12% of total earnings becomes the norm,” she said.
Yvonne Braun, director of long-term savings policy at the Association of British Insurers, which represents pension providers, said the Pensions Review should address not only investment and scale but the UK’s pension savings crisis, the state pension age and consumer decision making.
“We understand that government can’t put additional pressure on businesses at this time. But a roadmap for the longer term is still sorely needed to prevent pensioner poverty in the future, and to chart a clear path which gives businesses and individuals the certainty to plan," she said.
Mike Ambery, retirement savings director at provider Standard Life, said it was “disappointing news if true”, and warned the UK is storing up a savings crisis. Standard Life predicts that by the early 2040s, three in five people will be entering retirement with inadequate savings.
“We've argued that changes can be implemented as economic conditions allow and that a key step is to set out a roadmap so businesses and individuals know the direction of travel,” Ambery said.
Other countries have managed to increase contributions, he noted, pointing to Australia’s strategy of small, incremental change over an extended period of time.
The chief executive of master trust Smart Pension also expressed disappointment.
"When this new Labour government came to power, it promised to fix the foundations of the country. There is no more foundational issue than our pensions timebomb,” said Jamie Fiveash. “We call on the chancellor to prioritise the second phase of the review in the new year.”
Calum Cooper, head of pensions policy innovation at consultancy Hymans Robertson, predicted that “a prolonged, open-ended delay will be damaging for industry confidence in the ability for real change to take place”, as well as deferring better retirement prospects for millions.
The potential positive short-term impact of the delay for businesses and employers is important to factor into the timing of the review, as is the cost of living, he said, but argued that the second part of the review should still take place now, even if its conclusions are not implemented straight after.
He called for a pensions commission to be set up in the meantime.
"Meaningful change that will last beyond a generation would benefit from such an approach to give confidence in decisions, help make tough choices and ensure promises are delivered. This will give the best chance of leaving behind better jobs and a UK pensions system to be proud of from the Labour government,” Cooper said.
The chief executive of master trust Smart Pension also expressed disappointment.
"When this new Labour government came to power, it promised to fix the foundations of the country. There is no more foundational issue than our pensions timebomb,” said Jamie Fiveash. “We call on the chancellor to prioritise the second phase of the review in the new year.”
Calum Cooper, head of pensions policy innovation at consultancy Hymans Robertson, predicted that “a prolonged, open-ended delay will be damaging for industry confidence in the ability for real change to take place”, as well as deferring better retirement prospects for millions.
The potential positive short-term impact of the delay for businesses and employers is important to factor into the timing of the review, as is the cost of living, he said, but argued that the second part of the review should still take place now, even if its conclusions are not implemented straight after.
He called for a pensions commission to be set up in the meantime.
"Meaningful change that will last beyond a generation would benefit from such an approach to give confidence in decisions, help make tough choices and ensure promises are delivered. This will give the best chance of leaving behind better jobs and a UK pensions system to be proud of from the Labour government,” Cooper said.
Has phase 2 of the review been kicked into the long grass indefinitely, or do you think this will be picked up in 2025?
