I remember thinking that I was pretty unfortunate to be graduating in 2008 with a degree in finance. In hindsight, I was one of the lucky ones. After completing a multitude of job applications I did eventually land a career as a pensions actuary. Others weren’t so lucky: research from the Resolution Foundation suggests that those who entered the jobs market following the financial meltdown of 2008 have continued to face higher unemployment, lower pay and worse job prospects more than a decade later.
In a COVID-affected world, young people have it even worse. A recent survey carried out by the LSE and Exeter University found that more than one in ten people aged 16 to 25 have lost their job, and almost six in ten have seen their earnings fall since the pandemic began. This comes at a time when evidence already suggested that millennials would be the first generation worse off than their parents.
As a pensions professional, I am acutely aware of the impact that this will have on savers in the private sector. When younger generations come to retire (if they come to retire!) a pension may be their only means of financial support. In this context, I was particularly looking forward to reading The Pensions Regulator’s corporate strategy discussion paper, particularly when I heard that they had analysed future retirement needs on a generational basis, to best help people set their objectives. Could this be the start of a change in fortunes for the young, at least from a pensions perspective?
I have to say, I was a little disappointed. To be fair to the Regulator, it isn’t their fault. Although the Regulator has a statutory objective to protect the benefits of members of both occupational schemes and personal pension schemes, there is little they can do to redress the underlying issue that those closed DB schemes were significantly more generous than the pensions now on offer. Until we fix the core issue that people in a DC scheme carry the burden of investment risk, in a scheme with lower regular contributions than a DB scheme, the outcomes will remain substantially different. In my opinion, improved DC governance and value for money can only go so far.
So what should the Regulator do to support young savers? As a millennial myself (according to the Regulator’s own document, and not just because I enjoy avocado toast!) I would like to see a better clarified commitment on how the Regulator plans to ‘encourage innovation’ and ‘work with the market on alternatives to traditional schemes.’ Making it easier for CDC and other schemes that provide a hybrid benefit between DB and DC would improve member outcomes by encouraging paternalistic employers to provide better schemes, to attract and retain staff. I would also welcome more information on how the Regulator intends to minimise the adverse impact on the sustainable growth of an employer, while pursuing an agenda of increased DB pension security. After all, isn’t continued employment one of the best ways to help young savers? Is it fair when young employees are made redundant, driven in part by unaffordable pension promises made 30 years ago to ex-employees?
There is one other word conspicuously absent from the Regulator’s strategic priorities: education. As a pensions professional, I have the knowledge and resources I need to plan for a future with lower retirement incomes. But this is not the case for everyone. If pensions were better understood, more young people could at least properly plan for retirement, or – better still – campaign for change of what is arguably yet another injustice.
The proposed strategic objectives are intended to last for the next 15 years. In 2035, most private sector DB members will have retired. Perhaps then we will start taking the issue of pensions intergenerational inequality seriously. Unfortunately, it will almost certainly be too late for those same millennials who the Regulator is now trying to protect.
References:
Strategy was published in late-October, consulting until 16th December 2020
Further reading
https://www.lexology.com/library/detail.aspx?g=4103acc8-9fbd-4d6e-a9e6-289081eb9206
https://www.resolutionfoundation.org/publications/intergenerational-audit-uk-2020/
https://www.resolutionfoundation.org/app/uploads/2018/05/A-New-Generational-Contract-Full-PDF.pdf