The transformation of pension savings and retirement over the past 50 years in the U.K. reflects the nation’s significant shifts in both policy and style of living, according to a report by the Pensions Policy Institute and consultancy firm Capita Pension Solutions.
The report looked at events starting in 1974, which the PPI observed was a time in which the U.K. retirement landscape was dominated by defined benefit agreements.
Following regulatory changes in the 1980s under Margaret Thatcher’s government and an expanding workforce, defined contribution plans began to replace DB plans in the 2000s, particularly in the corporate world.
The report identified the introduction of auto-enrollment into corporate DC plans, starting in 2012, as one of the most important developments in the 21st century, stating that this change "would lead to a quickly growing membership and open up new investment opportunities"
“Pensions don't operate in isolation. There are so many other factors that influence pension saving as well, such as rising house prices and an increase in life expectancy” noted Shantel Okello, a policy researcher at PPI and co-author of the report, in an interview with Pensions & Investments.
Looking toward the future, the report predicted that by 2034, savers will be primarily dependent on defined contribution savings, with savings from defined benefit plans only applying to an ever-shrinking minority of the country's workers.
The report noted that decades of auto-enrollment will have assisted savings for those in a fixed corporate environment but, under current legislation, not the self-employed.
In 2024, the state pension age was 66, with current estimates projecting men to live, on average, to 87, and women, on average, to 89.
Key developments in the regulatory space recently have included the ongoing Mansion House reforms, with current Chancellor of the Exchequer Rachel Reeves exploring ways to boost pension fund investment within the U.K.
“The government's ongoing aim to boost the U.K. economy by increasing DC investment in U.K. assets can align with the goal of securing sustainable returns for pension plan participants,” said Okello.
“However, it does raise some concerns about the balancing of participant’s financial interests alongside broader economic objectives. Pension plans have this duty to prioritize the financial well-being of participants, and I think increased government influence over investments could potentially lead to conflicts of interest.”
