The PLSA at 100: Future-proofing pensions
21 September 2023
In this last in a series of three blogs, we’re celebrating our 100th anniversary by exploring the PLSA’s past, present and future.
If John Mitchell and his colleagues at the Association of Superannuation and Pension Funds in 1923 had been asked what pensions would look like in a century’s time, they might have said that they’d struggle to see beyond the end of the decade, let alone predict the next 100 years.
Fast-forward to today, and it’s equally difficult now to look so far ahead. Legislative pressure, societal changes in how we work and retire, environmental factors and shifts in the macroeconomic environment are all reshaping how and what we save.
But today’s young savers could still be engaged with their pensions in 70 years’ time. It is incumbent on us as an industry to build robust policies today that are both fit for the long-term nature of pension savings and flexible enough to respond to the changing world in which we live.
The pension savers of the future
More than one in five (20%) women and 15% of men born in 2023 will still be alive to celebrate the PLSA’s 200th birthday. If the State Pension age remained the same as it is now (68), that would mean a potential 32 years in retirement – assuming that people waited until they reached State Pension age to retire.
While not everyone will live until such a great age, we will no doubt see further reforms in the State Pension age. The prospect of maintaining an adequate income in retirement for a potential 30-plus years requires robust conversations now about contribution rates, technology to help people plan for the future, and innovative ways to enable savers to manage their money throughout their retirement.
That’s why our current focus on pensions adequacy is so important. Automatic enrolment has been a huge success. We’re delighted that the Pensions (Extension of Automatic Enrolment) (No.2) Bill, which supports some of the key recommendations from our Five Steps to Better Pensions report, has completed its path through parliament and received Royal Assent. For the future, we also need clear objectives and goals for the whole of the future pensions system and monitoring of performance.
Our current State Pension doesn’t protect people from poverty in retirement, and the wider pensions framework still lets down some groups of people. Current contribution levels are also too low to provide a reasonable standard of living in retirement.
The PLSA is committed to changing that, both for today’s scheme members and for those who will begin their retirement savings journey in the future.
An adequate, affordable and fair future
To create that adequate, affordable and fair future for pension savers, legislators, schemes, industry, employers and organisations such as the PLSA must all work closely together.
Government consultations on the future shape of DC schemes show that this co-operation is already starting to happen.
Speaking at the PLSA’s offices in January, Pensions Minister Laura Trott echoed the PLSA’s calls for future pension reform: “With more choice comes increased variability in terms of the retirement outcomes that schemes are delivering for savers. There is more that we can do to help.”
Better assessment of value for money in DC schemes is a key example of how schemes and regulators can help improve outcomes for members in future. Sarah Smart, Chair of The Pensions Regulator says: “DC pensions are all about outcomes, but we don’t know the outcome from DC pensions until the end of the process. By then it’s 30 years or more too late… In five years, I’d like to see competition between schemes based on value for money, advisers talking about value for money, not just cost, and using that as an integral part of their advice.”
For those closer to retirement, helping savers make sense of the pensions they already have, how these relate to their expected standard of living in retirement, and how they can address any gaps between those two will be particularly important.
The Retirement Living Standards have a fundamental role to play in that planning. As former Pensions Minister Steve Webb explains: “The Retirement Living Standards could have become just another report gathering dust on shelves but have instead become the go-to benchmark for the adequacy of the nation’s pension saving, which is no small achievement.”
Making pensions clearer
While the extended timelines for Pensions Dashboards mean delivery will be a little later than originally planned, they will also become a crucial tool in the future of pension savings.
Dashboards are just one example of how technology and data can revolutionise pensions and lifetime savings, making information more accessible and easier to understand, and helping scheme members throughout their careers assess their savings against their retirement expectations. One of the next steps for the industry is to help people take action based on those insights, whether that’s increasing contributions, working for longer, or taking a more flexible approach to their retirement planning.
Technology is helping in other ways too. We are already seeing schemes and providers using standards such as Open Banking to bring pensions closer to other forms of savings and make them part of people’s wider financial wellbeing. There is also a wealth of innovation in our market that is driving exciting new ways of helping individual savers and schemes to better manage money and make better-quality decisions about their retirement planning.
But ultimately the biggest priority for pensions in the future remains the same as it is today: to support everyone in making appropriate contributions during their working lives that will deliver the standard and duration of retirement that they want.
The PLSA will continue to work with everyone associated with pensions to meet that priority, whatever the future brings.
Read more about our history
Join us at Annual Conference 2023 where we'll be celebrating our centenary