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Brown: " For the first time, we can now benchmark how the whole system, with all its complexities."
The ‘Trends, Transitions and Trade-offs in the UK Pension System’ report – launched today (29 November) – looks at how the system is working to support adequacy, sustainability and fairness in later life, based on analysis from the PPI UK Pensions Framework.
The report, in association with Aviva, brings together findings to present a single picture of how the UK pensions system is working for pensioners today and the implications of saving patterns for future pensioners.
The PPI revealed how the risks of population ageing to financial sustainability, that once faced government, employers and pension providers, have been “largely superseded” by the risk to individuals of under-saving and continuing income inequality.
Using data up to and including 2021, the report also attributes many of these changes to trade-offs arising from a gradual pattern of risk transfer away from institutions, that is leaving people increasingly exposed to the possibility their savings may not adequately meet their needs in later life.
The picture for adequacy is “mixed, but the overall outlook is somewhat negative”, the report noted. It also found changes in the pension system, including the shift from defined benefit to defined contribution and state pension reforms, are “having a net-positive impact on sustainability”.
PPI research associate Anna Brain said the report findings “show a clear pattern”.
She said changes designed to offset the impacts of population ageing and economic change in the UK pensions system “are helping to improve sustainability by lowering the cost of providing pensions”.
“However, they also leave people increasingly exposed to the growing likelihood that the income and savings they have may not meet their needs in later life, and the challenges people face are not felt equally.
“Although risks to financial sustainability have by no means disappeared, they are being somewhat superseded by risks to individuals of continuing income inequality in retirement and of under-saving, despite high levels of pension coverage. Across the population, more people are saving, but not necessarily adequately for later life.”
She said for many, “challenges are also compounded by policy design, which has created a more significant state pension system but a more complex private pension system, with little support for difficult decisions that need to be made around how much to save or how to access savings”.
The report “provides a dynamic instrument and robust baseline against which ongoing changes, including those relating to the rapidly evolving macroeconomic events of 2022, can be compared over time,” she added.
Aviva chief executive for UK life Doug Brown noted: “At Aviva, we recognise the fundamental importance of the UK pensions system for our society. For the first time, we can now benchmark how the whole system, with all its complexities and trade-offs, affects savers and pensioners.
He urged the industry to “draw on the findings of the report and work together to ensure the right policies, support, and solutions are in place to help people navigate the system”.
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