Current Pensions System Failing Future Retirees
The UK’s leading financial services regulator has found that the current pensions sector is going to leave a huge number of future retirees at risk of lower living standards.
The Financial Conduct Authority (FCA) argue that the main causes of harm lie outside their remit, frequently driven by governmental regulation according to the ‘Sector Views 2020’ report.
The report highlights the mandatory minimum contributions for auto-enrolled schemes is set by the Department for Work and Pensions (DWP) and are ‘insufficient for most consumers to maintain similar living standards.
Based on current contributions, which increased from 3 percent to 5 per cent and 2 per cent to 3 per cent for employees and employers respectively, will mean 60% of the UK face a difficult retirement and compromised living standards.
The FCA ‘Sector Views 2020’ report, claimed:
“The prospect that consumers may not get a retirement income that meets their needs or expectations remains the central harm for the sector.
“Pensions and Lifetime Savings Association (PLSA) forecasts suggest that current minimum contributions are insufficient for most consumers to maintain similar living standards in retirement.”
On average consumers scammed by pension fraudsters lose 22 years’ pension savings. Whilst high-profile TV campaigns have had an impact in stemming the flow of successful scams, confidence in the sector is reducing.
The report has found pensions scams to be a particular threat to the sector, with innocent victims losing an average £82,000 worth of savings.
“Pension scams continue to be both a cause of significant consumer harm to victims and a threat to wider consumer confidence and market integrity.”
It is this falling consumer confidence which is continuing to pose a threat to future retirees.
Concerned that pension providers are failing their future retirement total, people are increasing looking to manage their own investments.
The FCA speculate that £5 billion over the next five years could be lost to consumers fully cashing in their pension at retirement and reinvesting it. The resulting missed employer contributions, reduced tax relief and increased tax penalties will attribute to the pension losses.
The FCA further claim:
“High profile failures of defined benefit (DB) pension schemes, changing pensions legislation and platform or administration failures can undermine consumer confidence in the pension savings market. This can lead consumers to opt out of pensions savings or to cash in their pension, even when it is not in their interest to do so.”
The government have made recent amendments to the Pension Schemes Bill in the hope of addressing the need to increase contributions for women with historically lower pension pots.
A review into automatic enrolment contributions for parents and carers has been ordered within 6 months of the passing of the Act.
The review will consider how legislative changes could provide pension contributions for parents and carers when they are temporarily out of work whilst raising children.
Similarly, a new clause will consider how pensions differ between men and women. It will consider the value of pensions held and the membership of pension schemes as a result of automatic enrolment with the hope that ‘policy could correct any and all inequalities’ between women and men.