Pensions Policy Institute – PI Partnership

between 2012 and 2018, from 34% to 81%, a 142% increase.

Free to choose

In 2014, the PPI published the briefing note Freedom and Choice in Pensions: com- paring international retirement systems and the role of annuitisation.

The note needs to be seen in context of the 2014 budget, when the then chancel- lor George Osborne announced radical changes to how defined contribution (DC) pension savings could be accessed at retirement. Traditionally it meant that around three quarters of those reaching retirement with DC pension savings use them to buy an annuity. Though, as an alternative to annuities, those over minimum pension age could invest their pot in an income drawdown product, but there were restric- tions on how much could be drawn down in a given year. The briefing note found that, while the demand for annuities was expected to fall in the short-term as a result of the new free- doms and flexibilities being announced, improved annuity products may still prove to be an attractive retirement income solu- tion for some groups in the future. The PPI’s review of international retire- ment systems highlighted several factors that affect the demand for annuities across different countries, providing rele- vance to the market in the UK. These include underlying cultural atti- tudes and the appetite for a secure and guaranteed source of income in retire- ment, the structure, variety and perceived value of other retirement income prod- ucts on offer in the market; the timing and framing of the decisions about how to allocate pension savings, and the per- ceived attractiveness of the annuity rates on offer.

Public pension reform

In 2015 the government introduced reformed pension schemes across all the main public service workforces. The

reforms included a policy of transitional protection that meant members closest to their normal pension age stayed in their legacy schemes. The Court of Appeal later found this tran- sitional protection to be discriminatory against younger members in the judicial and firefighters’ pension schemes. The government accepted that the judgment had implications for the other schemes including the police pension scheme, as they contained similar transitional arrangements. The Treasury then ran a public consulta- tion during the summer of 2020 to gather stakeholder views on the government’s two final policy proposals – a deferred choice underpin or an immediate choice exercise, to which in February this year the government went for the deferred choice underpin option. Going on the front during the consulta- tion, the PPI explored the impact of re-vamping the pensions tax system – emphasising that a flat tax relief system could see the proportion of tax relief enjoyed by basic rate taxpayers increase to 42% from 26%.

Backing up this call was a revealing report published with the ABI which pointed out that around 50% of tax relief on DC con- tributions is associated with individuals earning more than £60,000 a year, mean- ing that half the value of the tax relief is claimed by the 15% with the highest incomes. It found that, for the same cost, it would be possible to offer a higher ben- efit to basic rate taxpayers through a flat rate of relief.

ESG challenges Not all issues the PPI has had to deal with have been pensions specific. Though the rise of the issue of the modern age: ESG, poses specific challenges for pensions and the PPI. Lauren Wilkinson, a senior policy researcher at the PPI, says: “Following changes in regulation and an increasing recognition of the financially-material

Issue 102 | April 2021 | portfolio institutional | 41

nature of environmental, social and gov- ernance risks, we are seeing more schemes engaging with such strategies than ever before and to a greater extent. “However, there is still work to be done before we reach a point where all schemes are engaging in a meaningful way. For some, this may mean more support and guidance.”

Better outlook

Looking back on massive change in the pensions industry and the PPI’s role in it, Curry comments: “In some ways the land- scape today looks much better than when the PPI started. The pensions position of women has improved significantly, more people are covered and receive a better pension from the state, and more people than ever before are covered by workplace pensions. But,” adds Curry, “there is fur- ther to go.”

Looking forward to the future challenges, Curry notes: “While the last 20 years has been characterised by constant change, it is likely this will continue over the next 20 years. “Pension contributions are not high enough for many people,” he added. “There is still significant inequalities among different groups. Managing money through life is becoming increas- ingly complex and the impact of Covid-19 will put additional burdens on everyone. “I am sure,” concluded Curry, “the next 20 years will be as busy for the PPI as have been the last 20.”

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