Standard Life picks out notable pensions developments from the King’s Speech

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• Pension Schemes Bill places continued focus on key existing initiatives
• Crackdown on zero hours contracts could bring more workers into scope for auto-enrolment
• Affordable housing a key element of a secure retirement – housebuilding targets may pay off in the long-run
• Still no timeframe for implementing auto-enrolment reforms – younger workers missing out on contributions

Commenting on the King’s Speech, Mike Ambery, Retirement Savings Director at Standard Life said:

Pension Schemes Bill 

“The Bill referenced in the King’s Speech focuses primarily on initiatives that were already underway in the previous parliament. The growth of numerous DC small pots threatens retirement outcomes and it appears the new Government will continue to move towards existing plans to implement a default consolidator as a means to address the issue. Continued focus on Value for Money is a welcome step to ensuring people are investing in products that work for them, but we’d like to see factors like customer service feature in judgements of what constitutes good value for money.

“It's encouraging to see a focus on ensuring every saver has access to suitable retirement income products at the point of retirement. This is an area where there's a lack of consistency at present. Ideally this Bill will spur a renewed focus on how people structure their retirement incomes and the level of guaranteed and flexible income they require.

“DB superfunds – of which there are relatively few today – have been operating on temporary rules from the pensions regulator and the legislation announced today will look to formalise arrangements.”

Crackdown on zero hours may come with pension benefit

“Plans to largely ban zero hours contracts have taken centre stage as part of Labour’s focus on worker’s rights. A possible consequence of these plans is that more people will become eligible for workplace saving. Zero hours contracts don’t preclude auto-enrolment but the variability of people’s earnings make it less likely that people are earning enough for consistent pension savings. This is one trend where we’ll have to monitor closely to see how the labour market reacts and whether there does turn out to be an accompanying pension boost.”

Homeownership an important component of a secure retirement

“If the government can deliver on its ambitious housebuilding target it will address the near-term issues around supply and affordability. Looking further ahead, it could also help realise a broader benefit. At the moment the proportion of households that will own their home in retirement is falling and is set to drop from 78 per cent to 63 per cent by 2041. Reversing this trend will be important if we want to help more people have a secure retirement. Our analysis of average private rents highlights that people would need to save over £390,000 to fully cover rental costs over twenty years. These are huge sums and highlight just how important homeownership is in determining people’s financial security in retirement.”

Further auto-enrolment delay could hit retirees of the future

“We’re nearly a year on now from the passing of the Extension of Auto-Enrolment Act, which made provision for the age of eligibility to fall from 22 to 18 and also to remove the lower earnings limit which would mean people save from the first pound of earnings. While a broader pensions review has been promised, setting out a timeframe for implementing this legislation would be a relatively quick win for the new government.

“Saving for an extra four years right at the start of people’s careers can have a large positive impact on eventual retirement pots. Someone starting to save at the age of 22, working full time with a starting salary of £25,000 and paying the minimum auto-enrolment contributions (5% employee, 3% employer) could build up a retirement fund of £488,000 by the age of 68, the current assumed State Pension Age for anyone born after April 1977. If they started to save four years earlier, at the age of 18, they could amass a pot of £614,000 by 68. Even if they started at the age of 18 on a lower salary of £22,000, they could still end up with a pot of £541,000 – gaining £53,000 for their pension. These figures are not adjusted for inflation.

_{*assuming 3.50% salary growth per year, and 5% a year investment growth. Figures are not reduced to take effect of inflation. Annual Management Charge of 1% assumed. The figures are an illustration and are not guaranteed. Earning limits not applied.}

“Longer-term, the single biggest lever we can pull to secure savings adequacy is raising minimum contributions, which we’d like to see the Government move towards as part of an adequacy review. In the meantime, progressing this existing legislation would be a positive step.”

¹ Calculations assume the following:

Investment Growth	5.00%
Salary Growth	3.50%
Annual Investment Cost	1.00%