Modern pension provision for the modern labour market

The modern UK labour market is highly complex.  More people are retiring both in absolute terms and relative to the working population, and retirees are living longer.  The Office for National Statistics predicts that around a third of babies born in 2012 will live to be 100[1].  At the same time, more people are switching jobs on a more regular basis than ever before, and almost a third of workers are not saving at all for their own retirement.  These factors combined create the perfect storm for a UK pensions industry that is optimised for the workforce of 30 years ago – one that was younger, larger relative to pensioners, and more likely to stick to one job.

CEO of NOW: Pensions Morten Nilsson

Having an ageing population creates what the IMF describes as a “time bomb” for the state pension[2], where fewer taxpayers have to provide for more pensioners, making private pension saving more important than ever.  According to the government, there were 3.2 workers to every pensioner in 2008.  By 2033 that number will fall to 2.8[3].  On top of this, a highly transitory labour market introduces extreme complexity where transferring funds between schemes at different firms is costly, time-consuming and sometimes not even possible.

What is needed is pension provision to evolve to cope with these realities; the industry itself needs to play its part.  Echoing the comments made by the Minister for Pensions, Steve Webb MP, pensions need to be simple and flexible.

To achieve that, any modern pension scheme should have the following characteristics:

  • The ability to transfer funds in and out for free and any time
  • The ability to view and access savings any time
  • The ability to choose the right retirement age
  • Low charges to encourage saving

With auto-enrolment due to begin taking effect from October this year, schemes need these characteristics in order to justify the saving compulsion, and to minimise opt-outs.  If workers are to live longer and likely to face higher contributions to their pensions pots, then flexibility in saving for retirement seems a fair trade.  Government has taken action in introducing auto-enrolment, is considering further simplification options regarding the state pension[4] .  In the Queen’s speech last night the Government also made a promise to implement Budget proposal for new single-tier state pension of approximately £140 a week.  It is time pension providers considered doing their bit; otherwise we face an explosion of what is now perceived as “pension time bomb”.


[1] Telegraph, 11th April 2012.  IMF warns of £750bn pensions time bomb.  Telegraph Media Group Limited.
[2] Ibid.
[3] Parliament Researchhttp://www.parliament.uk/business/publications/research/key-issues-for-the-new-parliament/value-for-money-in-public-services/the-ageing-population/
[4] Steve Webb MP is focussing on cutting red tape, as stated in this interview for FTAdviser.  David Cameron has expressed interest in the Norwegian system of flexible retirement ages tied to life expectancy: Herald Scotland, 10th February 2012. Cameron in call for flexible pension system.  Herald & Times Group

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