The UK no longer has a private pension system, the director of the Institute for Fiscal Studies, Paul Johnson, has said, and accused the government of “extraordinary complacency” over pensions policy. 

 

With the decline of defined benefit schemes, the UK has moved to pure defined contribution, and although this has been compulsory for 10 years, the minimum contribution levels are generally considered too low to deliver an adequate retirement income for most people. On top of this, pension reforms in 2015 have removed the requirement to buy an annuity, allowing people to access their pension money more or less like a bank account. 

 

“I don’t think we actually have a private pension system anymore in any serious sense,” Johnson said speaking at the Institute and Faculty of Actuaries’ annual conference on Wednesday. 

Since the pension freedom reforms, the UK system consists of a series of tax-advantaged savings pots that put individuals at risk, he said. A pension should be a regular income stream that involves risk sharing either during or at the end of the working life, he argued. “It worries me” that this is no longer the case, he added. 

 

“Who is bearing all of the risk beyond the state pension? Individuals. Who is least able to bear the risk? Individuals. Neither employers, state nor insurance companies are sharing any of that risk anymore,” said Johnson. 

 

Governments are complacent about the bleak outlook for future pensioners, he said, as it is a problem for future governments and because the current cohort of pensioners is doing exceptionally well. Pensioners were the group most likely to be poor 40 years ago but are now least likely to be in that category. Meanwhile, nearly a third of the UK’s children lived in relative poverty before the pandemic, according to the Resolution Foundation.
   

     

There has been a “remarkable about-turn in the income of pensioners in the income distribution” as most pensioners are now better off than they were during working life, said Johnson.  

 

    
“That is an extraordinary fact and one that was not projected 30 or 40 years ago. This is not about wealth, this is just income,” he noted. The older generation has also done very well in terms of assets, as they are now more likely to own two or more properties than young people owning one home. 

 

There is a “big question for the future whether [pensioner incomes eclipsing working age incomes] is something that is actually desirable”, he said. “That chart is an extraordinary one. It leaves all sorts of questions about policy in the past and today, both towards current and future pensioners,” he said. 

The government has recently said it will continue to apply the ‘triple lock’ to state pensions, meaning pensioners will get a 10% boost in line with inflation, while most workers are seeing below inflation pay rises. State pensioners are also receiving an extra £300 as part of the government’s cost of living payments to deal with rising energy bills. 

 

While current pensioners have effectively ‘never had it so good’, this is unlikely to be repeated, he argued, saying the figures reflected “extraordinary complacency in government over pensions policy”.