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09

DWP 'overstating positive effects of pension changes'

Open-access content Monday 16th September 2013 — updated 5.13pm, Wednesday 29th April 2020

The Department for Works and Pension has ‘over-claimed’ the positive impact of its pension reforms, according to a senior corporate actuary at Buck Consultants

DWP's recent study, Framework for the analysis of future pension income sets out a number of assumptions about changes to people's future saving behaviour. The department's report makes the case that it has responded to the long-term challenges of an ageing population, a complex state pension system and a decline in private saving. 

The department said it has legislated to introduce a new, simpler state pension, and has rolled out automatic enrolment into workplace pension schemes. 

'Overall, this will make a positive difference for the large majority of people facing inadequate 

incomes,' the DWP said.

But Colin Richardson of Buck Consultants said the report displayed a 'tendency' to overlook other factors that would affect future pension income.

'There are many comments of improving pension incomes by additional pensions savings,' he said.

'This is feasible for many millions of employees but is just not possible for a material proportion of the workforce. Household debt is still almost at pre-financial crisis peak levels and real average incomes have fallen in recent years. There is also a long way to go in terms of financial education, defined contribution governance, structures for annuity purchase, informed investment structures etc.'

Richardson also said that the government had not gone far enough on public sector pension reform, making some agreements that were either unsustainable or unfair to the private sector. And he noted that ministers had severely reduced the annual and lifetime allowances, impacting an increasing number of employees. 

'Until a commitment to future long-term indexation is given it will be impossible to plan pensions savings,' he continued. 'Also, defined contribution funds are impacted much more than defined benefit pensions.'

This article appeared in our September 2013 issue of The Actuary.
Click here to view this issue
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