A comprehensive investigation by the Parliamentary and Health Service Ombudsman has found that thousands of women may have been affected by DWP’s failure to adequately inform them that the State Pension age had changed.
The 1995 Pensions Act and subsequent legislation raised the State Pension age for women born on or after 6 April 1950. The Parliamentary and Health Servive Ombudsman investigated complaints that, since 1995, DWP has failed to provide accurate, adequate and timely information about areas of State Pension reform.
PHSO published stage one of their investigation in July 2021. It found failings in the way DWP communicated changes to women’s State Pension age.
This final report combines stages two and three of the investigation. It both considers the injustice resulting from the maladministration we identified during stage one and also sets out our thinking about remedy.
To date, DWP has not acknowledged its failings nor put things right for those women affected. DWP has also failed to offer any apology or explanation for its failings and has indicated it will not compensate women affected by its failure.
DWP’s handling of the changes meant some women lost opportunities to make informed decisions about their finances. It diminished their sense of personal autonomy and financial control.
PHSO Chief Executive Rebecca Hilsenrath, said: “The UK’s national Ombudsman has made a finding of failings by DWP in this case and has ruled that the women affected are owed compensation. DWP has clearly indicated that it will refuse to comply. This is unacceptable. The Department must do the right thing and it must be held to account for failure to do so.
“Complainants should not have to wait and see whether DWP will take action to rectify its failings. Given the significant concerns we have that it will fail to act on our findings and given the need to make things right for the affected women as soon as possible, we have proactively asked Parliament to intervene and hold the Department to account.
“Parliament now needs to act swiftly, and make sure a compensation scheme is established. We think this will provide women with the quickest route to remedy.”
The investigation has been complex and involved analysing thousands of pages of evidence. On a number of occasions, parties were allowed additional time to consider and comment on our views.
PHSO also agreed last year to look again at part of their stage two findings following a legal challenge. All of this resulted to delays in the final report.
The report has been laid before Parliament, with a request that it looks at PHSO’s findings and intervenes to agree a remedy for the women affected.
While Parliament will make its own decisions about rectifying the injustice, PHSO have shared what they consider to be an appropriate remedy.
In addition to paying compensation, PHSO have made it clear that DWP should acknowledge its failings and apologise for the impact it has had on complainants and others similarly affected.
The Ombudsman has received a series of complaints relating to how well DWP has communicated a variety of State Pension reforms. Concerns about communication of changes to the State Pension age constitute only one such area of complaint.
The Department has also declined to act on other issues that have been consistently highlighted in complaints. A report from the Ombudsman later in the year will set these out.
It’s understood that over three million women are affected. So far, neither Conservative nor Labour politicians have committed to paying compensation,
Almost half of people (46%) over the age of 55 who are paying off mortgages are worried about rising rates, continuing to meet repayments and how to pay their loans off in full, research from PensionBee, the leading online pension provider, suggests.
The research carried out in June indicates that three quarters of respondents over age 55 who have mortgages are worried about rising interest rates (76%, Table 1) and concerned about how they will manage their payments to the end of term (62%, Table 2).
Respondents aged over 55 with a household income of less than £30,000 were more worried about rate rises than average (83%) and also about managing repayments to the end of the term (72%).
One in five over 55s on interest-only mortgage deals
Worryingly, less than half of over 55 respondents said they are on capital repayment mortgages (42%, Table 4), while 40% said they are on ‘part capital repayment, part interest only’ and almost one in five (18%) of over 55 respondents with mortgages are on interest-only deals, meaning that when they get to the end of their mortgage term, they will have to have enough cash available to pay off the remaining capital balance.
Uncertain repayment plans
Almost half (46%) of mortgage holder respondents aged 55 or over admitted they are unsure how they will pay off their mortgage in full. The most common remaining mortgage balance was less than £50,000 (Table 10), however, a small proportion (6%) of respondents reported their balance exceeding £250,000.
Using a capital lump sum (22%, Table 9) was noted as the most common way respondents over age 55 were planning to pay off their mortgage in full, while using a pension (16%), selling the house (11%) or using equity release (5%) were other options being considered.
Becky O’Connor, Director (VP) Public Affairs at PensionBee, commented: “The current mortgage rate rise shock may be contributing to an abrupt rethink of retirement plans and causing worry and uncertainty among the population of older homeowners still repaying loans.
“Anyone hoping to wind down from work as they approach their pensionable years and who still has a mortgage to pay could face a significant reality check in the coming months. Their mortgage could suck away even more of their disposable income, potentially forcing them to work for longer.
“Those on interest-only deals will not only face potential rate rises, but the additional headache of a looming deadline for repayment of their capital balances. Money they might have earmarked for repaying the capital at the end of the term might now need to go towards monthly repayments.
“It’s worrying that almost half of respondents in this older age group are not sure how they will repay their mortgage in full. One in five are pinning their hopes on a capital lump sum, while one in six think they will use their pension.
“People can access their pension from age 55 and can take 25% as a tax-free lump sum. With mortgage rates rising so rapidly, it may be tempting to tap the pension to pay off a home loan.
“Having a mortgage that runs into retirement can be a problem, because repayments can mean people have to take more out of their pensions in the early years.
“Anyone who is considering this must bear in mind the potential impact of using up tax-free cash early on in retirement and then running the risk of not having enough money later on to maintain enough income for a decent living standard.
“Pensions are designed to provide this income. While it can make sense to use some of the pot to pay off mortgages, it’s good to be aware of what this can do to living standards in retirement.”
Working longer to pay the mortgage
Almost one-in-five (19%, Table 3) mortgage holder respondents over the age of 55 are not working, with 22% saying they work part-time and 59% working full-time. Looking just at respondents aged over 65 who have a mortgage, the majority of whom will also be in receipt of the State Pension, 65% said they are still working full-time or part-time, suggesting that the need to continue to repay a home loan keeps people in work for longer.
There was a correlation between employment status and repayment type, with full-time workers over age 55 more likely to be making capital mortgage repayments and unemployed people more likely to be making interest-only payments, which tend to be lower.
Later life rate rise expectations
Almost half (47%, Table 5) of homeowner respondents aged over 55 identified their current mortgage interest rate as between 2 and 4%, with 12% on a lower rate of 1 to 2% and 25% on a rate of 4 to 5%. Just over one in 10 said they are paying between 5 and 6%, and 5% said their mortgage rate was over 6% (Table 4 below).
Just over a quarter (28%, Table 6) of those surveyed noted that their current mortgage deal is coming to an end either this year or in 2024. The vast majority (76%) of over 55s expect their repayments to increase in the next few years – at a time in life when people ideally look forward to lower housing costs.
Chancellor outlines reforms to boost pensions and increase investment in British businesses
the ‘Mansion House Reforms’ could unlock an additional £75 billion for high growth businesses, while reforms to defined contribution pension schemes will increase a typical earner’s pension pot by 12% over the course of a career
comprehensive reforms will increase pension pots by as much as £16,000
The reforms will also unlock up to £75 billion of additional investment from defined contribution and local government pensions, supporting the Prime Minister’s priority of growing the economy, and delivering tangible benefits to pensions savers.
The United Kingdom has the largest pension market in Europe, worth over £2.5 trillion. Over the past ten years Automatic Enrolment has helped an extra ten million people save for their futures, with £115 billion saved in 2021, but how this money is invested is limiting returns for savers. Comparable Australian schemes invest ten times more in private markets than UK schemes, reaping the rewards that UK savers are missing out on.
To level the playing field, the Chancellor and the Lord Mayor have supported an agreement between nine of the UK’s largest Defined Contribution pension providers, committing them to the objective of allocating 5% of assets in their default funds to unlisted equities by 2030. These providers represent over £400 billion in assets and the majority of the UK’s Defined Contribution workplace pensions market.
This could unlock up to £50 billion of investment in high growth companies by 2030 if all UK Defined Contribution pension schemes follow suit.
More effective investments by defined contribution pension schemes will also increase savers’ pension pots by up to 12%, or as much as £16,000 for an average earner.
Chancellor of the Exchequer Jeremy Hunt said:“British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for typical earner over the course of their career.
“This also means more investment in our most promising companies, driving growth in the UK.”
Secretary of State for Work and Pensions Mel Stride said:“British workers should have the confidence that their pension savings are working as hard as they are.
“Our reforms will benefit savers and society – unlocking investment into pioneering UK businesses, growing the economy, and helping the record number of people in this country saving into a pension to achieve the retirement they want.”
The Chancellor’s Mansion House Reforms will also deliver better returns for savers through a new Value for Money Framework which will make clear that investment decisions made by pension firms should be based on overall long-term returns and not simply costs. Pension schemes which are not achieving the best possible outcome for their members will be wound up into larger, better performing schemes.
Analysis shows that over a five-year period there can be as much as 46% difference between the best and worst performing pension schemes. This means that a saver with a pot of £10,000 could have notionally lost £5,000 over a 5-year period from being in a lowest performing scheme.
The Mansion House Reforms will be guided by the Chancellor’s three golden rules: to secure the best possible outcome for pension savers; to always prioritise a strong and diversified gilt market as we seek to deliver an evolutionary, rather than revolutionary, change in our pensions market; and to strengthen the UK’s position as a leading financial centre to create wealth and fund public services.
To ensure that the money unlocked by these reforms is invested quickly and effectively, the Chancellor has asked the British Business Bank to explore the case for government to play a greater role in establishing investment vehicles, drawing upon the BBB’s skills and expertise.
This will complement the £250 million of support that government has made available through the Long-term Investment for Technology and Science (LIFTS) initiative to incentivise new industry-led investment vehicles.
The government will also encourage the establishment of new Collective Defined Contribution funds which can invest more effectively by pooling assets as well as launch a call for evidence to explore how we can support pension trustees to improve their skills, overcome cultural barriers and realise the best outcomes for their pension schemes and subsequently their members.
Defined Benefit pensions
For the Local Government Pension Schemes a consultation will be launched on setting an ambition to double existing investments in private equity to 10%, which could unlock £25 billion by 2030. The consultation proposes a deadline of March 2025 for all Local Government Pension Scheme funds to transfer their assets into LGPS pools and setting a direction that each pool should exceed £50 billion of assets.
To improve outcomes for savers in a highly fragmented market, with over 5,000 Defined Benefit Schemes, the government will set out its plans on introducing a permanent superfund regulatory regime to provide sponsoring employers and trustees with a new way of managing Defined Benefit liabilities.
A new call for evidence will also launch tomorrow on the possible role of the Pension Protection Fund and the part Defined Benefit schemes could play in productive investment whilst securing members’ interests and protecting the sound functioning and effectiveness of the gilt market.
Capital Markets
The UK has the largest stock market in Europe and one of the deepest in the world – the London Stock Exchange had the most Initial Public Offerings (IPOs) outside of the US in 2021.
A comprehensive set of reforms will help attract the fastest growing companies in the world to grow and list in the UK. Prospectuses will be simplified, another milestone of Lord Hill’s UK Listing Review, replacing the EU’s outdated regime.
Firm’s prospectuses for investors will be easier to produce, more accessible and understandable, saving companies time and money and attracting more firms to do business in the UK.
Protectionist rules inherited from our time in the EU will be abolished. The Share Trading Obligation and Double Volume Cap have held back UK businesses and will be removed so firms can access the best and most liquid markets anywhere in the world.
The government has also accepted all of Rachel Kent’s Research Review published today, paving the way for a new ‘Research Platform’ that will provide a one-stop-shop for firms looking for research experts. It also sets the path for potentially removing the unbundling rules – an inherited EU law that requires brokers to charge a separate fee for research.
The Chancellor will set out plans to establish an entirely new kind of stock market that allows private companies to access capital markets without floating on a stock exchange. This ‘Intermittent Trading Venue’ would be a world first and will help firms grow and boost the UK economy. It will be complemented by a move to make shares fully digital rather than written on paper, saving businesses time and money.
This builds on the Chancellor’s Edinburgh Reforms and Solvency II reforms which will unlock over £100 billion of productive investment from insurance firms across the UK over a decade.
Seizing the opportunities of the future
To ensure the continued success of the UK’s world-leading financial services sector, firms must be ready to innovate faster, with regulators willing to support them as they do.
Following the Financial Services and Markets Act 2023 passing into law, the government has announced that it is commencing repeal of almost 100 pieces of unnecessary retained EU law for financial services, further simplifying the UK’s regulatory rulebook.
The government launched an independent review into the future of payments – led by Joe Garner, former Chief Executive Officer of Nationwide Building Society – to help deliver the next generation of world class retail payments, including looking at mobile payments.
The government also welcomes a report suggesting ways to move to fully digital shares, scrapping outdated paper-based shares. This will make markets more efficient and modernize how people own shares.
Further information
The Mansion House Compact members are: Aviva; Scottish Widows; L&G; Aegon; Phoenix; Nest; Smart Pension; M&G; Mercer.
The package of reforms announced yesterday could help increase pension pots for an average earner who starts saving at 18 by 12% over their career – over £1,000 more a year in retirement – all whilst supporting UK economy, businesses, and employment.
Analysis shows a difference in returns between schemes over a 5-year period of up to 46% in some cases. This means that a saver with a pot of £10,000 could have notionally lost £5,000 over a 5-year period from being in a lowest performing scheme.
Reaction to the Chancellor’s Mansion House Reforms
Jamie Dimon, Chairman & CEO, JPMorgan Chase said:“Great financial centers stay competitive by responding to the market and evolving through the kinds of important iterations that the Chancellor has announced.
“It’s also good to see the U.K. preparing for the industries of tomorrow considering the great promise of life sciences and A.I. as cornerstones of the economy in the years to come.”
Sir Jon Symonds CBE, Chair, GSK said:“I welcome these important reforms which will further strengthen the UK capital markets and support economic growth.
“The changes will help increase investment returns for pension savers through improved access to all asset classes including in high growth sectors, and ensure the UK’s most innovative companies are better supported by UK capital to stay in this country as they scale to maturity.”
Brent Hoberman, Executive Chairman & Co-Founder, Founders Forum, Founders Factory said:“The planned pension reforms will enable for capital to be productively invested in funds and scaleup companies in the UK.
“This should be welcome news to the UK industries of the future, their ability to attract more capital will create more national champions and generate growth, jobs and increased tax revenue.
“The reforms will enable the UK to build on the positive momentum in these key parts of the economy drive further synergies between it’s world class financial institutions and entrepreneurial base.”
C. S. Venkatakrishnan, Group Chief Executive, Barclays said:“The UK has needed a bold, forward-looking policy agenda and industrial strategy to grow the economy.
“These Mansion House Reforms are an important step in the right direction in mobilising private capital to support growth and innovation.”
Irene Graham OBE, CEO, ScaleUp Institute said:“The package of measures announced by the Chancellor today are very much welcomed by the ScaleUp Institute.
“They contain significant and innovative solutions which will help to enable easier and simpler access to capital markets and patient growth capital. These new initiatives, coupled with the reforms already underway, will support and fuel the global ambitions of our scaleups, and high-potential scaling businesses, across all sectors and all areas of the UK.”
Miles Celic, Chief Executive Officer, TheCityUK, said: ““The competitiveness and attractiveness of any successful international financial centre must, by definition, always be a work in progress. The Chancellor is right to be ambitious in building on the UK’s successes and recognising that we can’t afford to be complacent.
“The Mansion House Reforms are ambitious, pragmatic and necessary. They will underpin the UK industry’s future success. Most importantly, their main beneficiaries will be the British people, who will gain from greater investments in growing businesses, revitalising communities and improving retirements.”
Chris Hulatt, Co-Founder, Octopus Group said: ““We welcome government’s efforts to make the UK a more attractive place to start a business, and support measures that provide additional opportunities for private companies to raise capital.
“Finding new ways for the most skilled and talented entrepreneurs to access capital as they build businesses is fundamental to helping the UK maintain its place as the best place to start, build and scale a business.”
Noel Quinn, Group Chief Executive, HSBC said:“I welcome the strong and comprehensive package of measures announced by the Chancellor in his Mansion House speech.
“Unlocking equity to support companies in innovative high-growth sectors such as technology and life sciences is vital to the future growth of the UK economy.”
Lord Mayor, Nicholas Lyons said: ““These reforms and the Mansion House Compact mark a historic turning point that will accomplish the dual aim of securing a brighter future for retirees and channelling billions into our economy.
“I’m proud to have convened key industry players to make this commitment to unlock £50bn in capital by the end of the decade which will improve returns for pension savers and support firms to grow, stay and list in the UK.”
Tim Orton, Chief Investment Officer, Aegon UK said: ““Aegon UK is proud to be a founder signatory of the Mansion House Compact which will help deliver better long-term outcomes for our customers.
“We are committed to ensuring our customers can access and share in the growth and success of innovative companies we invest in. We will use our scale and expertise to develop investment solutions seeking to improve the retirement outcomes of the millions of members of the defined contribution pension schemes we support. The Compact will also create opportunities that help deliver our climate targets as we progress towards net zero.”
Sir Nigel Wilson, Group CEO, Legal & General said:“As the UK’s largest manager of money for pension clients, L&G is pleased to support the ambition set by the Compact.
“Increasing investment in science, technology and infrastructure will support better returns for the tens of millions saving for their retirement, as well as stimulate much needed long-term growth for the UK economy.”
Mark Fawcett, CEO, Nest Invest said:““For many years now, illiquid assets have been integral to diversified DC pension schemes around the world.
” It’s been a key driver behind Nest setting up our own private market mandates to ensure our members aren’t missing out. Nest will continue to increase our investment in unlisted equities, helping our 12 million members benefit from the strong returns these types of deals can typically offer.”
Ruston Smith, Chair, Smart said: ““Smart Pension is committed to securing better outcomes for long-term savers. Giving UK savers access to higher net returns by investing in unlisted equities, including innovative, high-growth UK companies as part of a well diversified portfolio, will deliver these outcomes over time.
“We are pleased to be a signatory of the Mansion House Compact and, as a successful British fintech, we are proud to be supporting the country’s technology sector, helping home-grown start-ups and scale-ups to flourish and thrive.”
Scottish Widows, CEO, Chirantan Barua said: ““The industry needs to modernise the investment options available to customers.
“With the right consumer protections in place, the proposals announced today could make a huge difference to our customers and the wider UK economy. I’m proud that Scottish Widows is a founding signatory of the Mansion House Compact.”
Phil Parkinson, Investments and Retirement Leader, Mercer said:“Mercer supports proposals that lead to improved pension scheme member outcomes.
“As a global investment solutions provider, we see first-hand the value that illiquid asset allocations can bring to investors’ portfolios from a risk and a return perspective and are in favour of initiatives designed to unlock this asset class for DC members.”
Edward Braham, Chair, M&G said:“Patient capital put to work in companies or projects over multiple decades is essential to support economic growth and importantly, capture value for people’s pensions as they save for their retirement.
“M&G’s heritage is in investing in private markets, whether it is through infrastructure, real estate or innovative companies with purpose. We are democratising access to private markets through the Prudential With Profits Fund, and are supportive of DC pension reforms that encourage more investment of this kind that has potential to result in positive outcomes for savers.”
Mike Eakins, Chief Investment Officer, Phoenix Group said:““We are proud to sign the Compact, which is an important step to allow UK long-term savers to invest in a more diversified portfolio, giving them access to the potential returns of a broader range of assets, in line with their international counterparts.
“Currently, only 9% of UK pension funds are invested in alternative assets as compared to 23% in other major pensions markets. With the right regulatory environment, Phoenix Group could invest up to £40 billion in sustainable and/or productive assets to support economic growth, levelling up and the climate change agenda whilst also keeping policyholder protection at its core.”
Male pension pots are two thirds larger than women’s on average
Only 23% of women are confident they will be able to retire comfortably
Fewer women than men have pensions, and those who do are saving less than their male counterparts, reveals independent research conducted on behalf of Handelsbanken Wealth & Asset Management.
Handelsbanken Wealth & Asset Management’s report,Can we solve the gender wealth gap? highlights the disparity in retirement savings between men and women, revealing that over a fifth (26%) of women have no formal pension savings at all, compared to just 16% of men.
Women’s pension pots were found to be substantially smaller too. The average pension across amounts for all respondents stood at £103,037. However, male respondents’ pension pots were found to be significantly higher, averaging at £142,234, while women’s came in at just over a third of this, at an average of £51,384.
It is therefore unsurprising that only 23% of women surveyed stated they are confident that they will be able to retire comfortably, with over a third (35%) believing they won’t be able to.
However, there are signs that things could be turning around for the next generation. While women over the age of 40 are generally less likely to have a pension than men of a similar age (63% vs 80%), men and women in their 30s were found to be equally likely to have a pension (77%). For adults under 30, women were found to be more likely to have a pension than men (76% vs 59%).
The research also revealed that most people tend to leave the management of their pension to their workplace pension provider (45%). Men were slightly more likely than women (43% versus 37%) to manage their own pensions, such as via a self-invested personal pension scheme (SIPP).
However, more than half (56%) of those who self-manage their pensions admitted that they seldom check their retirement savings – of which 64% were female.
Christine Ross, Head of Private Office (North) & Client Director at Handelsbanken Wealth & Asset Management, said: “Women on average continue to remain a long way behind men in pension savings, with the problem at its most acute among older generations who are closer to retirement.
After decades of gender disparity, it’s encouraging to finally see clear evidence of change, with pension take up reaching parity among thirtysomethings, and women in their twenties ahead of their male counterparts.
The recent steps taken at a government level have the potential to further close the gender pensions gap, including the free childcare scheme expansion announced at the Spring Budget, which should allow more working mothers to return to the workplace and build their pension savings.
“But despite signs of progress, there is still considerable work to be done. Education around pensions needs to be improved, as does women’s confidence in financial products. We strongly encourage seeking advice on long-term financial planning where possible, to ensure that the plans you have in place are fit for purpose on an ongoing basis.
“Generally, it is important to review your pension regularly and to top up your workplace pensions where possible. If you’re unable to pay into a formal pension, there are plenty of other options to consider, including ISAs, which offer tax-free savings.”
The TUC has today (Thursday) called on the Chancellor to bring forward an emergency budget that delivers for “working Britain”.
In a submission to the Treasury, the union body warns the government not to repeat the same mistakes of the “Osborne era” when pay and public services were slashed and huge tax breaks were given to big business.
The TUC says the priority for ministers must be to get wages rising across the economy and to fix the staffing crises plaguing hospitals, social care, education and other frontline services.
Pressure on wages
New analysis from the union federation shows that real wages down are down by over £100 a month compared to this time last year – a number that rises to £190 for public sector workers.
For the typical nurse this means a real-terms pay cut of £1,000 over the next year and a real-terms pay drop of £4,300 since 2010.
The TUC says rather than “handing out bungs” to corporations and City bankers the government should:
Bring forward inflation proof increases in the minimum wage, universal credit and pensions to October to help families through the cost-of-living emergency.
Get the minimum wage on a path to £15 an hour as soon as possible.
Give public service staff a real-terms pay rise that at least matches the rising cost of living and begins to restore earnings lost over the last decade.
Strengthen and extend collective bargaining across the economy, including introducing fair pay agreements to set minimum pay across whole sectors.
Impose a larger windfall tax on oil and gas companies that that are profiteering from UK families.
Make sure everyone pays their fair share of taxes by going ahead with increases in corporate tax, and equalising capital gains tax rates with income tax as a first step to fair taxes on wealth.
Speaking ahead of Friday’s emergency budget, TUC General Secretary Frances O’Grady said:“Friday’s mini budget is an acid test for this government. Are ministers on the side of working people, or more interested in handing out bungs to big business and City bankers?
“Tax cuts will do nothing to jumpstart the economy and will only line the pockets of the wealthy and companies like Amazon.
“When millions are struggling to make ends meet, the Chancellor should focus on getting wages rising across the economy – not helping out corporations.
“That means a £15 minimum wage as soon as possible, boosting universal credit and fair pay deals for workers across the economy.
“And it means ensuring those who’ve profited from this crisis pay their fair share – with a bigger windfall tax on oil and gas giants like Shell and BP, and new taxes on wealth.”
On the need to avoid repeating the mistakes of the past, Frances added:“We need a budget the delivers for working Britain – not more continuity conservatism.
“Kwasi Kwarteng mustn’t reheat the failed policies of the Cameron-Osborne government, which slashed pay, workers’ rights and public services.
“This pushed people into debt and locked families into years of declining living standards.
“After the longest wage squeeze in modern history, people can’t afford to tighten their belts any more.”
Twice as many workers think pensions are a better bet than property for retirement saving
Nearly one in three who don’t save into pensions say other financial priorities mean they can’t afford to
Twice as many workers see occupational or personal pensions as a safer way of saving for retirement than property investment, new analysis* from Handelsbanken Wealth & Asset Management shows.
More than half (57%) of retirement savers who are still working believe pensions are the most secure retirement saving method, compared with 25% who chose property and one in seven (14%) who opted for ISAs, stocks and shares and saving accounts, according to Handelsbanken Wealth Management & Asset Management’s analysis of the latest Government data.
Those relying on property as their biggest source of income in retirement are even fewer – just 11% of those who are not retired expect it to be their most important source of income when they stop working. That compares with 46%, who think their main income will be from their occupational or private pension.
Some 23% believe their State Pension, benefits, or tax credits will be their largest source of income, while 12% think it will be their savings, investments, earnings, income from a business or sale of a business.
The data shows the number of people saving into pensions has risen to a new record high of 21.8 million after an increase of 40% – or 6.1 million – in the past decade, with most of this growth coming from new savers into defined contribution pensions.
Auto enrolment, which was launched in 2012 and made enrolment into workplace pensions automatic, has boosted the number of defined contribution pension holders to 9.9 million from 2.8 million, while the number of savers with defined benefit – or final salary – schemes has grown by 1.5 million to 8.8 million.
That has cut the number of people below State Pension Age who do not have a workplace or private pensions by 14% or 2.6 million in a decade, but there are still major issues for those who do not contribute. Nearly a third (29%) say they have too many other expenses, bills and debts or simply cannot afford a pension, while more than half (54%) say their income is too low, they are not working, or are still in education.
Christine Ross, Head of Private Office (North) and Client Director at Handelsbanken Wealth & Asset Management said: “It’s great to see confidence in pensions growing, with people rating them as the best way to save for retirement. More importantly, the number of people who are saving into pensions is increasing.
“It’s vital to use all of the tax-efficient options available to create a flexible retirement plan, as well as trying to start saving as early as possible, with the earliest savings having the longest period of time to grow.
“Employers are now obliged to make contributions for their staff, which helps many savers get on the retirement planning ladder. Some company pension schemes even offer additional ‘matching’ contributions if the employee pays more than the minimum. That can be as good as a pay rise and the money will grow, tax free, in the pension scheme for many years.”
Company pension schemes of course do not apply to the self-employed – and Handelsbanken Wealth Management & Asset Management’s analysis shows there is a greater reliance on property for retirement among those who work for themselves.
More than two-thirds (69%) of over-55s below State Pension age own a property, but that rises to 81% among the self-employed in that age group. And 25% of those that are self-employed in this age bracket own other properties in addition to their home compared to just 15% of those who are employed.
Average wealth has increased by 59% in the past decade while earnings have grown just 19%
Even among the wealthiest the value of assets has grown by 64% compared with 20% for salaries
The growth in average wealth from assets including property and investments has been three times higher than the growth in average earnings over the past decade, new analysis* from Handelsbanken Wealth & Asset Management shows.
Figures show people are being out-earned by their homes and other investments, with average wealth rising 59% over the past decade compared with 19% growth in salaries over the same period, according to Handelsbanken Wealth Management & Asset Management’s analysis of the latest Government data on Britons’ wealth and assets and earnings.
Average wealth for Britons is estimated at £575,948 after a decade of growth from £361,831, with house price rises as well as increases in pensions, investments and physical wealth including possessions all appreciating in value since 2010. By contrast, average earnings have only increased to £31,840.
For the wealthiest 25% of the population, the growth in assets has been even more impressive – they now own wealth estimated at £733,800 compared with £447,900 a decade ago. They have seen their wealth increase 34% faster than the British average, while their salaries have increased 22% faster.
Of course, the growth in wealth has not been shared equally throughout the country – the wealthiest people in London have seen their wealth grow by 77% over the period to an average £902,400, compared with £495,200 in 2010.
The top 25% wealthiest in the North East have only seen growth of 30% during the same period, taking them to an average £459,500, which equates to an increase of £105,300. Growth among the top quartile of wealthiest people in the South East was 77% during the same period, compared with 69% in the East of England and 66% in the South and Wales. The North West saw growth of 45%.
PK Patel, Head of Wealth Management at Handelsbanken Wealth & Asset Management, said: “Earnings growth has on average been constrained over the past 10 years, with most people relying on their houses, investments, and possessions to boost their wealth.
“It is fascinating to see the gulf between the increase in asset values and the increase in average earnings over the past decade, and is instructive for advisers and their clients on how to plan their finances and assess their wealth.
“No matter how your total wealth is made up, it’s important to have a clear plan on how you want to use it for your own future and for the benefit of other family members.”
Table one: wealth and salary growth for the richest quartile by UK region, 2008-10 vs 2018-20
Region
Top quartile average wealth
Top quartile average salary
2008-10
2018-20
Growth
2010
2020
Growth
North East
£354,200
£459,500
30%
27736.5
£33,108
19%
North West
£387,400
£561,400
45%
29272
£35,256
20%
Yorkshire & the Humber
£376,300
£556,300
48%
28591.5
£33,890
19%
East Midlands
£415,500
£617,900
49%
29442
£35,204
20%
West Midlands
£399,200
£621,500
56%
28654.5
£35,003
22%
East of England
£511,500
£864,700
69%
33006.5
£38,938
18%
London
£495,200
£902,400
82%
39157.5
£47,423
21%
South East
£597,100
£1,058,000
77%
34775.5
£40,834
17%
South West
£485,300
£805,500
66%
28887
£34,434
19%
Wales
£383,900
£635,700
66%
27845.5
£33,453
20%
Scotland
£364,000
£584,800
61%
30072.5
£36,889
23%
Great Britain
£447,900
£733,800
64%
31401
£37,625
20%
Table two: average wealth and salary growth by UK region, 2008-10 vs 2018-20
New research released finds defined contribution (DC) pension schemes, which do not automatically offer a secure, guaranteed income for life, can lead to poor outcomes for those on lower incomes.
Since the introduction of ‘pension freedoms’ in 2015, the vast majority of consumers are opting against a guaranteed income, resulting in them facing significant threats to their retirement security.
Researchers from the University of Birmingham, supported by abrdn Financial Fairness Trust, conducted in-depth interviews with DC pension consumers and gained insights from industry stakeholders to shed light on the experiences, risks and challenges of pension decision-making in the new retirement landscape.
They concluded that the existing system disadvantages people who are already vulnerable to poor pension outcomes.
Those from more disadvantaged backgrounds are less likely to have access to networks of friends and family who can help them with their decision-making. In addition, the support available for those without access to regulated financial advice (typically those with smaller pension pots and/or low-to-middle incomes) remains largely limited to written information and checklist-based guidance.
This means many people do not have access to the kind of support they need – i.e. a personal recommendation on the best course of action.
Researchers found:
1. Consumers feel confused and overwhelmed by the DC withdrawal decision. Many people feel ill-prepared for making the ‘right’ decision about accessing their DC pension savings. They are often overwhelmed by its complexity and feel they need more help in the form of personalised advice, however, the cost of this advice is unaffordable for those on lower incomes.
2. Consumers (particularly non-advised consumers) do not know who to trust when they need support with their decision. This leads to poorer outcomes for those from less affluent backgrounds, who do not have social networks of people who can recommend trustworthy advisers.
3. Consumers have to manage high levels of confusion and uncertainty about the future when making a decumulation decision. Consumers are aware they have to manage multiple risks when deciding what to do with their DC pension pot. This includes several highly unpredictable aspects of the future, such as their health and longevity, the need for care, and stock market performance. This ‘individualisation’ of risk creates a sense of insecurity and adds to the discomfort and difficulty of the decision-making process.
Researchers have called for government, regulators and employers to do more to protect low-income DC scheme holders.
They make the following recommendations:
Better value products – Government and regulators must ensure industry works harder to meet the needs of people on low-to-middle incomes by creating more flexible, better value products. For example, by introducing a charge cap for DC investment pathways and drawdown arrangements to prevent consumers paying unnecessarily high charges, and help rebalance some of the responsibility for achieving good consumer outcomes
Price-capping – There should be Government-funded, price-capped, financial advice services so that lower income people can access regulated financial advice to support their pension decisions.
Reducing risk – Access to affordable, trustworthy regulated financial advice should be expanded as an option for all DC pension consumers. Through the introduction of pension freedoms, Government has created a situation where individuals are taking on too much responsibility and risk for securing an adequate retirement income. Government therefore needs to redress this balance by taking responsibility for providing appropriate protection and support. More regulation is needed of DC pensions to ensure value for customers.
Dr Louise Overton, Assistant Professor in Social Policy and Director of CHASM from the University of Birmingham, said: “Seven years on from the introduction of pension freedoms, too many people are facing poor retirement outcomes because industry and government aren’t doing enough to protect them.
“Our research shows that Pension Wise (set up as ‘a first port of call for DC consumers, offering free and impartial information and guidance) does not offer adequate support, and those without access to good quality regulated financial advice (those with smaller pension pots and lower incomes) are particularly at risk of adverse outcomes.
“We call on government, industry and the regulator to expand the scope of money guidance, widen access to regulated advice, and prioritise product innovation.”
Karen Barker, Head of Policy at abrdn Financial Fairness Trust, said: ““The current ‘one size fits all’ system is not suitable for those on lower incomes. Whilst the new pension freedoms introduced by the government have benefitted many, this research shows they cause a great deal of confusion.
“It’s not practical to expect those with smaller pension pots to pay a lot of money for advice on how to manage those pots.
“However, it’s vital that those on low-to-middle incomes are properly advised if we are to avoid a return to high levels of pensioner poverty.”
New pension regulations came into force on 30 November 2021. The new regulations permit Trustees to block or suspend a suspicious-looking pension transfer if they believe that the transfer could be to a scheme that is fraudulent.
These new regulations could prove to be the most significant development in preventing pension scams.
Paul Higgins of Pension Justice, a law firm that has helped recover millions of pounds in mis-sold pensions, says: “I am delighted that the Government has brought in this new rule, and I hope that this will prevent pension scams taking place so that pension investors will not lose their life savings.
“Unfortunately, there are still hundreds of thousands of people who have previously taken their money out of pensions and handed over their life savings after being badly advised to invest in worthless, unregulated investments like carbon credits, ethical forestry, storage pods, to name but a few”.
One of Pension Justice’s clients, Mrs F from Burnley, lost her entire life savings worth over £157,000 after being persuaded by an “advisor” from Asset Management Advisory Services (AMASS) Ltd (t/a AMASS Europe) to transfer her pensions into a SIPP and “invest” in an EPS Portfolio with Avalon.
The advisor paid themselves £3,842.10 in commission and then arranged to “invest” Mrs F’s £149,000.00 in what turned out to be unregulated funds promising unrealistically high returns.
The investments subsequently failed, and Mrs F lost her entire life savings. It then transpired that the advisor and their company had minimal authorisation from the Financial Conduct Authority and were not authorised to provide advice on pensions and investments.
Pension Justice took up the case with the FSCS (Financial Services Compensation Scheme) and recovered compensation of £85,000.00 on behalf of their client which was the maximum payable under the scheme.
Paul says: “One of Mrs F’s pensions was a gold-plated defined benefit scheme pension with Proctor and Gamble. Under the new rules Proctor and Gamble could have prevented the transfer from taking place and, in which case, Mrs F would not have lost her life savings.
“Unfortunately, we know that there are still hundreds of thousands of pension investors who have lost all their pensions and are facing a miserable retirement with little or no money apart from their state pensions. Some are even being forced to carry on working way past retirement age”.
Paul and his team at Pension Justice have managed to recover sums up to £189,591.37 for his clients, many of whom have been scammed by cold callers and told that they could “double their money” or are promised potentially incredible returns if they transfer their hard-earned pension pots.
Treasury’s ‘£17bn mistake’ that will take “generations to resolve”
In its report published today the Public Accounts Committee says HM Treasury has “done little to identify and manage the stark differences in average pensions between genders and other groups” and “should have foreseen the age discrimination issue that gave rise to the 2018 McCloud judgment”.
In 2011 and 2015 the Treasury introduced reforms aimed at making public service pensions more sustainable and affordable, but a 2018 Court of Appeal judgement (the McCloud judgement) ruled parts of the reforms unlawful.
The Treasury now wants pension scheme members to pay the estimated £17 billion cost to put that right, despite the unlawful reform having been “its own mistake – a mistake which could have been avoided by listening to advice and which will take many decades to resolve.”
Around 25% of pensioners and 16% of the working-age population are members of one of the four largest public service pension schemes covering the armed forces, civil service, NHS and teachers. The schemes are almost all unfunded, meaning retirees’ pension benefits are paid out of current workforce contributions.
The Committee saw “evidence of public service pensions issues affecting delivery of frontline services, and independent schools opting out of pension schemes because of increasing costs”.
It says HM Treasury doesn’t have the data it needs nor evaluated the impact of its reforms, or whether they are achieving its pension policy objectives – the PAC is “not convinced it is on track”.
The Treasury also seems “unconcerned about the drop in enrolment by some workers”. The Committee warns on the “a danger of a perfect storm where some young people believe they cannot afford pension contributions because of high costs of living and retire with a reduced public sector pension as a result.
Many younger workers will continue to pay rent in retirement because they cannot afford to buy a home and the cost of supporting this generation will fall on future taxpayers”.
Meg Hillier MP, Chair of the Public Accounts Committee, said: “The Treasury’s £17 billion mistake on pensions reform is a ripple compared to the tsunami of costs to the public purse if Government fails to address the growing number of young people unable to afford to plan for a proper pension.
“It’s lack of curiosity about why nearly a quarter of a million workers are not joining these pension schemes is a concern. Pension planning must be long term; mistakes and poor planning have an impact for decades. Short term cost savings can become long term costs to individuals with lower retirement incomes and the taxpayer who may end up supporting them.”
