A new financial year is a time of reflection, when we take stock of our finances and consider our hopes for the next chapter. The same can be said when it comes to pensions.
As the Minister for Pensions, I’m pleased with what we’ve achieved over the last financial year and hugely excited about what the next 12 months will bring.
Automatic enrolment has now seen 10 million people enrolled into a workplace pension since 2012, an incredible landmark which demonstrates the extraordinary success of this policy. Business owners all over the UK have made this savings revolution possible, with participation rates increasing from 26 per cent to 70 per cent because of automatic enrolment.
Millions more people are now saving and with contribution rates climbing to 8 per cent this month, people will be putting away even more for their futures. Evidence has shown that following the contribution rates increase a year ago to 5 per cent, the numbers stopping saving remained low, consistent with trends from before the first contribution increase. The 2017 Employers’ Pension Provision survey also found that a significant number of employers (24 per cent) already contribute more than the April 2019 minimum contribution rate.
And we know that, coupled with other changes such as the £650 hike in the personal allowance to £12,500 and the rise in the National Living Wage hourly rate from £7.83 to £8.21, most people won’t see much of a difference to their take home pay. If people keep saving after the contribution rate increase this year, millions of people will be able to look forward to bigger pension pots and a more comfortable retirement. A truly fantastic achievement.
Our job isn’t done though. We have also brought forward trials designed to make it easier for self-employed people to save and plan ahead for retirement. While automatic enrolment has brought millions into workplace pension saving, we know we need to do more to bring the self-employed into pension saving and we’re acting to do just that.
Master Trust pension schemes have played a central role helping thousands of employers to meet their new AE duties. Membership of Master Trusts has increased rapidly from 270,000 in 2012 to almost 14 million at the end of 2018. This has made it absolutely critical for appropriate protections to be in place for members. The deadline for Master Trust schemes to apply for authorisation has just passed and from this point on, subject to any discretionary extensions, all Master Trust pension schemes will have to meet high standards of governance to enter or remain in the market.
In December, we unveiled our vision for pensions dashboards and announced a consultation with industry to make them a reality. That consultation has finished and we’ve now published our response, setting out our vision for the next steps. In terms of bringing the pensions industry into the digital age – giving people real time information at their fingertips – dashboards represent a great leap forward.
A non-commercial dashboard will be driven forward by the new Single Financial Guidance Body, which will rebrand on 1 April. The SFGB will be a single, streamlined place where people can get all the information they need about their money and will take an important role in the delivery and governance of dashboards.
Unleashing this kind of innovation is a key theme of modern policy development – it’s one we have embraced and will continue to embrace wholeheartedly. That’s why we paved the way for the introduction of an entirely new pension product, with benefits for savers and employers alike, through a consultation on collective defined contribution pensions.
These schemes will open up a much-needed middle ground in the pensions industry, as final and average salary pensions become rarer and numbers saving through DCs expand.
New regulations on environmental, social and governance issues, brought in last summer, will improve investment transparency and the regulation of defined benefit pension consolidation will ensure there is better flexibility in the market for employers as well as improved protections for members.
But perhaps the most significant move we’ve made to protect savers was to announce that we’re significantly enhancing the powers of The Pensions Regulator This will ensure that, for the first time, wilful and reckless behaviour by trustees that puts savers’ pension pots in jeopardy could be punished with hefty jail sentences.
If the last financial year was one for exploring and developing all of these new ideas, now we’re working tirelessly to make them a reality for members and employers.
I am bringing all of our consultations together into one of the most significant pieces of pensions legislation of the decade. A Pensions Bill that will lay out the future of CDC schemes, defined benefit consolidation, the powers of the TPR and pensions dashboards.
The next financial year promises to be another transformative one for pensions, with new legislation taking centre stage in driving through our ambitious reforms. I can’t wait to get stuck in.
Guy Opperman is Minister for Pensions and Financial Inclusion