workplace pensions, second edition Daniela Silcock, Head of Policy - - PowerPoint PPT Presentation

Daniela Silcock, Head of Policy Research Pensions Policy Institute 29 September 2016 www.pensionspolicyinstitute.org.uk

The Future Book: unravelling workplace pensions, second edition

We’d like to thank...

Columbia Threadneedle Investments for commissioning this report

• What is The Future Book?
• Automatic enrolment update
• DC saving levels
• How are people behaving in the new landscape?
• Questions for the future

The Future Book: unravelling workplace pensions

What is The Future Book?

The Future Book is:

• A response to shifts in pensions world
• A compendium of DC statistics
• A projection of future trends
• A longitudinal study
• A reference document
• A source for debate, discussion, analysis and planning

• What is The Future Book?
• Automatic enrolment update
• DC saving levels
• How are people behaving in the new

landscape?

• Questions for the future

The Future Book: unravelling workplace pensions

• The number of employees going through the

automatic enrolment process is reducing

• The number of employers going through the

process is increasing

• Employees in smaller organisations are more

likely to opt out

Smaller employers are beginning to stage

310,000 282,000 245,800 292,500

2,779,800 3,373,900 1,832,200 2,192,400 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000

2015 2016

DC contract DC trust Hybrid DB

Employees

900,000 people have been automatically enrolled since March 2015

Employees automatically enrolled by March 2015 and March 2016, cumulative

The number of employers going through the automatic enrolment process is increasing exponentially

Employers who completed automatic enrolment declarations of compliance by 31 July 2016 (cumulative)

50000 100000 150000 200000 250000

Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16

54,224 27,818 2,256 206,137

Number of employers

Opt outs by employer size and scheme type (2015)

7% 8% 9% 11% 12% 8% 8% 9% 11% 11% 8% 17%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

Those working for the smallest employers have the highest opt out rate at 17%

Scheme type Employer size

Proportion of members leaving pension scheme by employer size, 2015

4% 4% 6% 5% 7% 6% 10%

0% 2% 4% 6% 8% 10% 12%

1-19 20-49 50-99 100-249 250-499 500-999 1,000+

Workers from larger employers are more likely to leave their pension scheme than workers from smaller employers

Employer size by number of workers

• Master-trust enrolments are almost at 50% of

automatic enrolments

• By 2030 half of all DC members could be in

master-trust schemes

Master-trust enrolments are continuing to rise

Nearly 50% of people are being auto- enrolled are in master trust schemes

Automatic enrolment by proportion of people to March 2015 and March 2016, by scheme type

Source: The Pensions Regulator

2015

Other Schemes Master trusts

2016

Other Schemes 53% Master trusts 47% Other Schemes 51% Master trusts 49%

By 2030 50% of DC scheme members could be in master trust/multi-employer schemes

Workplace DC by scheme members in 2016 and 2030

20 40 60 80 100 120 140 160

2016 2030

2030 2016

Master trust schemes 7.2 million Existing DC schemes 2.1 million Other automatic enrolment DC schemes 5.4 million Existing DC schemes 3.8 million Other automatic enrolment DC schemes 3.7 million Master trust schemes 4.8 million Members in 100,000s

• What is The Future Book?
• Automatic enrolment update
• DC saving levels
• How are people behaving in the new landscape?
• Questions for the future

The Future Book: unravelling workplace pensions

• More people are saving in DC pensions
• The average contribution and pot size has fallen
• Over time, these will rise again

More people are saving, bringing the average levels down

Median employee contribution rates in DC schemes are decreasing

4.0% 1.0% 3.2% 2.4%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Trust-based DC Group personal pensions

Median employee contribution rates to DC pensions by year

Median employer contribution rates in DC schemes are decreasing

8.0% 3.0% 5.3% 4.0% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

DC trust Group personal pensions

Median employer contributions to DC pensions by year

Median pension savings have decreased since 2010/2012

Median DC savings by group in 2010/2012, 2012/2014 and 2016 Great Britain, people aged 16 and over (includes both deferred and active savers)

£15,000 £15,000 £14,000

£0 £4,000 £8,000 £12,000 £16,000 2010/2012 2012/2014 2016

Median DC pension pots at State Pension age could grow from around £26,000 today to around £49,000 over 20 years

£80,935 £90,689 £86,874 £185,830 £216,363 £192,136 £25,749 £39,450 £49,241 £3,554 £7,449 £8,208 £8,251 £17,567 £21,524

(£20,000) £30,000 £80,000 £130,000 £180,000 £230,000 Aged 55-64 in 2016 Aged 45-54 in 2016 Aged 35-44 in 2016

Distribution of pension pot sizes at State Pension age for different cohorts (2016 earnings terms)

90th percentile 75th median 25th 10th

• What is The Future Book?
• Automatic enrolment update
• DC saving levels
• How are people behaving in the new landscape?
• Questions for the future

The Future Book: unravelling workplace pensions

• 87,000 people took lump sums in Q1 2016,

compared to 23,000 drawdown and 18,000 annuity contracts

• However, the value of funds being invested in

drawdown is higher than for annuities or lump sums

Lump sums are more popular than drawdown or annuities

People are spending more money on drawdown products than on annuities or through lump sum withdrawals

Value of retirement income products and cash lump sum withdrawals by quarter (billions), ABI members

£0.99 £0.99 £1.17 £1.07 £0.95

£0.85 £1.30 £1.55 £1.35 £1.48

£1.40 £1.27 £0.86 £0.75

£0.0 £0.4 £0.8 £1.2 £1.6 £2.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

Annuities Drawdown Cash lump sums

Annuities: * average fund - £52,500 Drawdown: * average fund - £67,500, * average withdrawal - £3,800 Cash lump sum: * average withdrawal - £14,500

£bn

More people are withdrawing money through cash lump sum than through drawdown or annuity products

Numbers of drawdown and annuity purchases and cash lump sum withdrawals by quarter, ABI members

20,610 18,243 22,385 20,235 17,965 11,475 18,779 25,105 19,733 23,210 120,688 46,012 46,300 87,000

20,000 40,000 60,000 80,000 100,000 120,000 140,000 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

Annuities Drawdown Cash lump sums

• Fewer people used advice when purchasing

annuities or drawdown

• More people are accessing lump sums
• DB to DC transfer requests have tripled from

new IFA customers and doubled from existing customers. Are people are engaging in riskier behaviour when they access DC savings?

Between 2014 and 2015 the use of independent advice fell from 81% to 69% for drawdown sales and 22% to 20% for annuities

New annuity and drawdown contracts sold by ABI members

10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 Annuity contracts Drawdown contracts 70% 7% 22% 10% 9% 81% 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 Annuity contracts Drawdown contracts

Not advised Restricted advice Independent advice

74% 6% 20% 15% 16% 69%

• What is The Future Book?
• Automatic enrolment update
• DC saving levels
• How are people behaving in the new landscape?
• Questions for the future

The Future Book: unravelling workplace pensions

• Are higher opt-outs among smaller employers a

significant issue?

• Will the master trust regulatory framework be

sufficient to protect the savings of half of our future DC members?

• Are people engaging in riskier behavior when

they access DC savings?

Questions for the future