Following the Chancellor’s Mansion House speech yesterday evening, the Government has this morning published a raft of policy consultations and updates: 12 from the Treasury and 10 from the Department for Work and Pensions (DWP).
An update to Auto Enrolment reform: ‘Analysing the impact of Private Pension measures on member outcomes’, provides estimates on the financial benefit to savers of the reforms announced yesterday. In this update:
- The assumptions used by the Government were: average earner (£30,000 salary, which increases 3% per annum in nominal terms) and where they have a pension contribution of 8% of their salary, with outcomes assessed after 30 years.
- The Government acknowledges that the returns for savers with private equity investments within their pensions will be only ‘slightly higher’ than without, ‘as the fees and charges associated with Private Equity are assumed to be greater than investment in equities and bonds, lowering the overall return. This is particularly the case when assuming a 2/20 fee structure (2% per annum charge with a further 20% performance fee for returns above 8%).’
- The Government acknowledges that the greatest impact on pot sizes comes from the reforms already proposed of removing the Lower Earnings Limit on workplace pensions and lowering the starting age for Auto Enrolment from 22 to 18 (pg 10).
- The Government estimates that the introduction of: ‘A multiple default consolidator model will reduce the number of loss-making small pots, leading to estimated industry savings of up to £225m per year which we expect to be passed on to the member in the form of lower charges.’
- The Government assumes returns over a full working life, rather than for someone who is midlife or approaching the end of working life.
Becky O’Connor, Director of Public Affairs at PensionBee, commented:
“The Government has made some punchy claims about what the benefit to pension savers could be from the many consultations and reforms outlined today. Yet the Government’s own analysis admits these returns will only be ‘slightly’ higher with the 5% component of private equity. This suggests that the measures are less about increasing returns to savers and more about generating additional capital from pension funds to invest in UK businesses.”
