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This month in pensions: Looking for solutions amid rising inflation and cost of living challenges


By Gareth Jones

In the past month, issues around the cost of living and inflation have remained at the top of the political and policy agenda, with latest ONS figures showing that CPI inflation hit 7% in March (rising from 6.2% in February) and set to rise further still. This type of high inflationary environment has not been experienced in the UK for most of the past 30 years and is likely to put significant pressure on the pensions sector and for savers and pensioners themselves. Many will see the value of their pensions and savings eroded, while also finding themselves struggling with the increasing cost of living, such as energy and food price rises. The recent example of, given by Susanna Reid in an interview with the Prime Minister about ‘Elsie’ – a 77-year-old woman who has only one meal a day and travels on buses during the day to keep her household bills down – has the potential to be symbolic of the difficulties that pensioners currently face.

Of course, there are no easy answers to inflation and rising prices – particularly those driven by global factors. At a political level, much of the debate has focused on tax and ‘who should pay’ for the cost of living rises (e.g. working people, employers, oil and gas firms). In terms of the pension sector, much of the response from policymakers and regulators has been to ‘double down’ on ongoing reforms, addressing long-term challenges and ensuring that as many people as possible can afford a secure retirement.

One particular theme over the past month has been the news on the ongoing success of automatic enrolment. ONS figures from April show that, thanks to the introduction of auto enrolment in 2012, the UK workplace pension participation rate is now at its highest ever -- at 79% (22.6 million employees). Evidence suggest that the regulators (TPR and FCA) have been keen to sustain the success of auto-enrolment by cracking down on employers with enforcement powers, with the TPR recently revealing it has used Auto-Enrolment powers more than 500,000 times since 2012.

Elsewhere, the actions of regulators reveal a tougher stance on a range of issues. For example, the actions of the TPR against the Water Companies Pension Scheme (as well as the scrutiny from the Work and Pensions Committee) raises an interesting question about the decisions that pensions schemes take over the distribution of surplus funds. After all, returning pension fund surpluses to employers (rather than giving it to scheme members) may not be consistent with the fiduciary duties of scheme trustees and have legal implications. The outcome of the TPRs actions are likely to have wider consequences for pension schemes.

At a wider policy level, we are seeing some significant developments on financial regulation. Next week, the government will unveil its legislative agenda for the coming year in the Queen’s Speech. Among the measures expected to be announced, will be reforms to financial services regulation, in which the government will be keen to demonstrate that intends to capitalise on the UK’s post-Brexit freedom by diverging from existing EU prudential and conduct rules and ensuring that the City of London (and wider UK) remains competitive. The outlined reforms to Solvency II have the potential to be among the most significant for the pensions sector. The proposed changes to risk margins of insurers is likely to have a significant impact on the bulk annuity market – and for pension trustees, it could mean that more and more of them consider buy-ins and buy-outs for their schemes in the coming years.

None of these policy and regulatory interventions are likely to help the sector much in terms of the current cost of living and inflation challenges but do underline that policymakers and regulators are likely to be more interventionist in their efforts to protect pensioners and savers and ensure as many people as possible can afford a secure retirement.

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