13 Jun 24 ILC Retirement Income Summit - slides.pptx

ILC's Retirement Income Summit was hosted by M&G and supported by Canada Life. The event brought together key policymakers, influencers and experts to help identify policy priorities for the next Government and ensure more of us have access to a decent income in retirement.

Contributors included:

Jo Blanden, Professor in Economics, University of Surrey
Clive Bolton, CEO, Life Insurance M&G Plc
Jim Boyd, CEO, Equity Release Council
Molly Broome, Economist, Resolution Foundation
Nida Broughton, Co-Director of Economic Policy, Behavioural Insights Team
Jonathan Cribb, Associate Director and Head of Retirement, Savings, and Ageing, Institute for Fiscal Studies
Joanna Elson CBE, Chief Executive Officer, Independent Age
Tom Evans, Managing Director of Retirement, Canada Life
Steve Groves, Chair, Key Retirement Group
Tish Hanifan, Founder and Joint Chair of the Society of Later life Advisers
Sue Lewis, ILC Trustee
Siobhan Lough, Senior Consultant, Hymans Robertson
Mick McAteer, Co-Director, The Financial Inclusion Centre
Stuart McDonald MBE, Head of Longevity and Democratic Insights, LCP
Anusha Mittal, Managing Director, Individual Life and Pensions, M&G Life
Shelley Morris, Senior Project Manager, Living Pension, Living Wage Foundation
Sarah O'Grady, Journalist
Will Sherlock, Head of External Relations, M&G Plc
Daniela Silcock, Head of Policy Research, Pensions Policy Institute
David Sinclair, Chief Executive, ILC
Jordi Skilbeck, Senior Policy Advisor, Pensions and Lifetime Savings Association
Rt Hon Sir Stephen Timms, former Chair, Work & Pensions Committee
Nigel Waterson, ILC Trustee
Jackie Wells, Strategy and Policy Consultant, ILC Strategic Advisory Board

1. Retirement Income Summit 2024 Building intergenerational fairness @ILCUK #RetirementIncome

2. Welcome Will Sherlock, Head of External Relations, M&G #RetirementIncome @ILCUK

3. Thank you to our sponsors: #RetirementIncome @ILCUK

4. The future of retirement incomes David Sinclair, Chief Executive, ILC-UK #RetirementIncome @sinclairda / @ILCUK

5. The State Pension debate Chair: Stuart McDonald, Head of Longevity and Demographic Insights, LCP #RetirementIncome @ILCUK

6. Chair: Stuart McDonald, @ActuaryByDay Daniela Silcock, Pensions Policy Institute, @PPI_Research Jonathan Cribb, Institute for Fiscal Studies, @JCribbEcon / @TheIFS #RetirementIncome @ILCUK

7. Presentation Daniela Silcock, Head of Policy Research , Pensions Policy Institute #RetirementIncome @ILCUK

8. State Pension and adequacy Daniela Silcock, Head of Policy Research, Pensions Policy Institute (PPI) @PPI_Research

9. Life expectancy at birth of males and females from 1981 to 2070 (cohort life expectancy) ONS Data Demographics have increased State Pension costs UK population pyramid, 2020 ONS data

10. Age State Pension age under current legislation Today State Pension age is rising to age 68 by the 2040s

11. SPa rises decrease the costs of State Pension, but the overall costs are projected to continue rising Illustrative projected cost of State Pension as a percentage of GDP (DWP projections)

12. 12 Chile – 0% Iceland – 0% Mexico – 15% Israel – 10% Australia 0% Denmark – 30% United Kingdom – 22% Switzerland - 22% Netherlands – 29% Estonia – 28% Ireland – 30% Japan – 31% United States – 39% Germany – 42% Slovenia – 42% Slovak Republic – 53% Spain – 74% Austria – 74% Luxembourg – 77% Turkey – 73% Portugal – 75% Italy – 75% Greece – 73% Hungary – 63% Finland – 57% France – 60% Czech Republic – 49% Belgium – 43% Norway – 40% Poland – 31% New Zealand – 40% Latvia – 44% The UK State Pension is relatively low Gross pension replacement rates from mandatory public pension schemes (state pensions) in OECD countries in 2021 Lithuania – 20% South Korea – 31% Canada – 39% Sweden – 41%

13. 13         Adequacy and State Pension

14. Presentation Jonathan Cribb, Associate Director and Head of Retirement, Savings, and Ageing, Institute for Fiscal Studies   #RetirementIncome @ILCUK

15. The state pension debate (in 6 minutes) Jonathan Cribb Associate Director, IFS 22 April 2020 ILC-UK Retirement Income Summit

16. Increasingly comprehensive system following the reforms of 2010 and 2016 State pension gender gap has fallen to <5% for new retireees Higher “basic” level of state pension through the NSP: better foundation for retirement incomes Full NSP: 30% of median full-time earnings; should avoid poverty unless (potentially) single private-renter We do not have the very high spending on unfunded pay-as-you-go state pension schemes e.g. seen in France (14% of GDP) But we need a well-functioning private pension system First universal increases in the state pension age have been implemented – sensible policy to help control costs Report title (Insert > Header/Footer) © Institute for Fiscal Studies Lots to like about the state pension

17. © Institute for Fiscal Studies Need for a plan on indexation: triple lock creates uncertainty over level and cost Source: Figure 6.1 Cribb, Emmerson, Johnson, Karjalainen (2023) ‘The future of the state pension’ Simulated distribution of new state pension as % of median earnings

18. © Institute for Fiscal Studies … and relying on a higher SPA to control costs hits the poor harder Distributional impact of increasing SPA by one year or moving from triple lock to earnings indexation, effect of lifetime state pension income, MEN. Source: Figure 6.3 Cribb, Emmerson, Johnson, Karjalainen (2023) ‘The future of the state pension’

19. Quick conclusions Report title (Insert > Header/Footer) © Institute for Fiscal Studies Some optimism: UK state pension system working well in many ways Some urgent decisions needed in the next parliament Additional support for those struggling to work to SPA, given SPA increasing to 67 2026-2028 Will SPA increase to 68 be brought forward to 2037-39? Decision needed soon to give ten years’ notice Long term decision making needed on the level of the state pension NSP should rise in line with earnings in long run, but still protect pensioners during times of high inflation (not a ‘double lock’). Some more thought needed on interaction between state and private pension system

20. Keynote: An interview with Rt Hon Sir Stephen Timms Chair: Sue Lewis, Trustee, ILC UK #RetirementIncome @ILCUK

21. Retirement income and intergenerational fairness Chair: Siobhan Lough, Actuary, Hymans #RetirementIncome @ILCUK

22. Chair: Siobhan Lough,  @hymansrobertson Professor Jo Blanden, University of Surrey, @JoBlanden / @UniOfSurrey Molly Broome, Resolution Foundation, @mollybroome_ / @resfoundation Dr Vivienne Burrows, ILC-UK, @ILCUK Clive Bolton, M&G, @mandgplc #RetirementIncome @ILCUK

23. Presentation Jo Blanden , Professor of Economics, University of Surrey #RetirementIncome @ILCUK

24. Generations and economic inequality Professor Jo Blanden Centre of excellence on ageing School of Economics, University of Surrey

25. Intergenerational persistence A measure of the strength of the relationship between family background and children’s later economic success. Much research and discussion has focused on parents’ investment in children and the impact of this on later earnings and family income. But as total wealth grows earnings are becoming a less important determinant of economic wellbeing. Despite data limitations some facts are emerging on the extent of intergenerational wealth inequality.

26. Key questions What is the total intergenerational persistence in wealth? How has it changed? What drives it?

27. What is the total intergenerational persistence in wealth?

28. How has it changed? This is hard to estimate directly so we rely on information on home ownership. We find that home ownership has become increasingly associated with parental home ownership over the last 20 years. (Blanden et al, 2023) Expressed differently, home ownership has fallen among those in their 30s and 40s, and it has fallen disproportionately among those whose parents do not own their own homes. We can reasonably assume that the relationship between parent and child wealth has also increased.

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30. What drives intergenerational wealth transmissions? Intergenerational transmissions of wealth are stronger than intergenerational transmissions of earned income. Even among individuals with the same earnings, wealthier parents have wealthier children. Those with richer parents have also been shown to invest in more risky assets. But primary drivers are gifts when individuals are in their 20s and inheritances when individuals are older. Inheritances are larger and more likely to be received by those who earn more, meaning that they magnify overall intergenerational persistence.

31. Presentation Molly Broome, Economist, Resolution Foundation #RetirementIncome @ILCUK

32. June 24 @resfoundation Retirement Income Summit 2024 Retirement income and intergenerational fairness Molly Broome, Resolution Foundation

33. 34 Estimated mean real defined benefit pension wealth of full-time employees at age 60, by five-year age cohort: GB Notes: Data is adjusted into 2022 prices using the earnings deflator. Historic pension wealth is based those aged 58 to 62. Projected pension wealth assumes people retire at age 60. Source: RF analysis of ONS, Wealth and Assets Survey; ONS, Labour Force Survey. @resfoundation Older cohorts have more DB pension wealth

34. 35 Estimated mean real defined contribution wealth of full-time employees at age 60, by five-year age cohort: GB​ Notes: Data is adjusted into 2022 prices using the earnings deflator. Historic pension wealth is based those aged 58 to 62. Projected pension wealth assumes people retire at age 60. Source: RF analysis of ONS, Wealth and Assets Survey; ONS, Labour Force Survey. @resfoundation Younger cohorts have more DC pension wealth

35. 36 Estimated mean real defined contribution wealth of full-time employees at age 60, by five-year age cohort: GB​ Notes: Data is adjusted into 2022 prices using the earnings deflator. Historic pension wealth is based those aged 58 to 62. Projected pension wealth assumes people retire at age 60. Source: RF analysis of ONS, Wealth and Assets Survey; ONS, Labour Force Survey. @resfoundation Higher interest rates make saving for retirement easier

36. 37 Estimated mean real defined contribution and defined benefit pension wealth of full-time employees at age 60, by five-year age cohort: GB​ Notes: Data is adjusted into 2022 prices using the earnings deflator. Historic pension wealth is based those aged 58 to 62. Projected pension wealth assumes people retire at age 60. Source: RF analysis of ONS, Wealth and Assets Survey; ONS, Labour Force Survey. @resfoundation But higher rates only marginally improve the outlook

37. June 24 @resfoundation Retirement Income Summit 2024 Retirement income and intergenerational fairness Molly Broome, Resolution Foundation

38. Perceptions of intergenerational inequality 13 June 2024 Vivien Burrows Senior Research Fellow, ILC UK @ILCUK #RetirementIncome

39. Few people feel wealth in the UK is fairly distributed Source: YouGov survey of 2,054 adults. Fieldwork undertaken 15 – 16 May 2024. Question: Now thinking about the distribution of wealth in the UK. Which of the following statements comes closest to your view? This is particularly the case among younger generations, with more than 1 in 2 people under 50 feeling that older generations receive a disproportionate share of wealth.

40. Most anticipate waning government support for older generations in the future Source: YouGov survey of 2,054 adults. Fieldwork undertaken 15 – 16 May 2024. Question: Do you think the overall level of government for older generations will have increased, decreased, or stayed about the same for today’s younger generations by the time they reach retirement age? More than half of respondents aged 25 and over believe that today’s younger generations cannot expect to receive the same level of government support as current retirees when they reach retirement age.

41. There is a significant appetite for saving across all age groups Top 3 financial priorities: Source: YouGov survey of 2,054 adults. Fieldwork undertaken 15 – 16 May 2024. Respondents could select more than one answer. Question: Imagine that you were given £10,000 today. Which, if any, of the following ways would you choose spend it? Please select all that apply. However, l ess than 1 in 10 people under 50 said they would put some of the money away for retirement

42. Presentation Clive Bolton, CEO – Life Insurance, M&G #RetirementIncome @ILCUK

43. Arrows: Delete all arrows if not required Horizontal line: delete the arrowhead that isn’t required, line should not be moved What the research shows us: the intergenerational contract needs to keep pace with changing societal trends. The intergenerational bond is important because all age groups benefit, but it’s a complex picture. A reset is coming because savers are facing different pressures and new expectations. What should we do about it? Champion the intergenerational contract because it requires dynamic support. Clive Bolton, CEO of Life, M&G plc

44. How can we boost and saving for retirement? Chair: Nigel Waterson, Chair of Trustees, ILC-UK #RetirementIncome @ILCUK

45. Chair: Nigel Waterson Jordi Skilbeck, Pensions and Lifetime Savings Association, @thePLSA Nida Broughton, Behavioural Insights Team .  @B_I_Team Shelley Morris, Living Wage Foundation, @LivingWageUK #RetirementIncome @ILCUK

46. Presentation Jordi Skilbeck, Pensions and Lifetime Savings Association #RetirementIncome @ILCUK

47. Jordi Skilbeck, Senior Policy Advisor - PLSA [email protected]

48. The current situation According to PLSA research, more than 50% of savers will fail to meet the retirement income targets set by the 2005 Pensions Commission and without policy intervention, most people in the UK will retire with inadequate pension income. The 32% of the total population missing the PLSA RLS Minimum level equates to 6.3 million households. Percentage of the population on track to hit each RLS level

49. What needs to happen

50. MODERATE £ 31,30 MINIMUM £14,400 £26,532 £25,095 £21,073 £18,344 £17,985 £ 20,355 HALF MEDIAN MEDIAN TWICE MEDIAN CURRENT RETIREMENT OUTCOME VS CUMULATIVE PLSA POLICY RECOMMENDATIONS TO 12% COMFORTABLE £ 43,100 PLSA POLICY RECOMMENDATIONS VS RLS AT 12% CONTRIBUTIONS - 2024

51. The findings of the research suggest that eliminating the Automatic Enrolment trigger for individuals earning less than £10,000 could have a significant positive impact of around 7-13% for the retirement outcomes for the majority (90%) of individuals assessed How does AE reform interact with low-earners? From a total population (100% of low earners) removing groups that are considered either to not be impacted by the policy change or whose personal or household financial circumstances make them more resilient results in a subpopulation of around 10%.

52. To improve retirement incomes for savers, the next Government should: Extend automatic enrolment: Introduce the secondary legislation needed to enact the powers contained within the Pensions (Extension of Automatic Enrolment) Act 2023 which will allow saving from the first pound of earnings and from age 18. Publish roadmap for raising automatic enrolment contributions: Set out a roadmap for raising contributions gradually over the next decade. Increases in contributions should be split 50/50 between employers and employees so that each must pay 6%. This means an increase of only 1% for employees and 3% for employers so that total contributions reach 12% by the mid-2030s. Employment Bill – Scope of automatic enrolment: Bring forth an Employment Bill to reclassify gig economy workers so they can start saving into a pension. Immediate Request of the next government in reforming AE

53. Presentation Nida Broughton, Director, Economic Policy, Behavioural Insights Team #RetirementIncome @ILCUK

54. 55 Boosting private saving for retirement Nida Broughton

55. Auto-enrollment has had a massive impact on pensions saving…. Millions more workers

56. …but it’s only got us so far…. Millions more workers Defaults ≠ engagement 87% saving less than 15% of earnings (IFS) Unintended consequences? AE individuals per month (Beshears et al 2024): +£35 pension savings +£7 debt Quarter of people swayed by short term benefits vs long term returns when transferring a pension (FCA)

57. 58 Designing an environment where it’s easy to make good choices Defaults, nudge+ & self-nudges Example : Save More Tomorrow increases saving from 3.5% to 13.6% over 40 months (Thaler/Benartzi) Systematically taking friction out of processes Example: Warm transfers from pension providers to Pension Wise increases appointment booking from 3% to 14% (BIT) Designing the information environment Example: £100 cashback incentive makes people 20% more likely to say they would transfer their pension to an option that would leave them £1,000 worse off (BIT)

58. 59 [email protected]

59. Presentation Shelley Morris, Senior Project Manager - Living Pension, Living Wage Foundation  #RetirementIncome @ILCUK

60. Signing up to Living Pension has really helped us… demonstrate that we look after our colleagues today and in the future, and that enables us to attract and retain talent. It has improved our ability to communicate about how pensions work and financial wellbeing generally and we have had better engagement from colleagues. Nathan Mallow, Coastline Housing

61. Thank you! Shelley Morris Senior Project Manager Living Wage Foundation www.linkedin.com/in/shelley-morris-lwf/ [email protected]

62. How can we better use our wealth to support a decent income in retirement? Chair: Sarah O’Grady, Former Social Affairs and Education Editor, The Daily Express #RetirementIncome @ILCUK

63. Chair: Sarah O’Grady Tom Evans, Canada Life, @CanadaLifeUKadv Tish Hanifan, Society of Later Life Advisers, @SOLLAadvice  Jim Boyd, Equity Release Council, @JWMBoyd / @Equity_Council #RetirementIncome @ILCUK

64. Presentation Tom Evans, Managing Director - Retirement , Canada Life #RetirementIncome @ILCUK

65. ILC Retirement Income Summit 2024 June 2024 Tom Evans, Managing Director - Retirement

66. Annuity providers 1 have announced strong sales, and Canada Life recently reported record individual annuity sales of £1.2bn for last year. But where is the annuity market, and incomes, heading? Annuity rates are driven by the returns available on long-term gilts, which have increased materially since the end of quantitative easing in 2022 and are expected to remain at broadly similar levels in the medium term. 1 : https://www.abi.org.uk/news/news-articles/2024/2/2023-sets-new-post-pension-freedoms-record-for-annuity-sales/

67. Investment timeline AT THE START OF 2022, A BENCHMARK 2 ANNUITY WITH A £100,000 PURCHASE VALUE WOULD HAVE PAID AN INCOME IN THE REGION OF ROLL THE CLOCK FORWARD TWO YEARS, THAT SAME ANNUITY WOULD PAY AROUND OVER THE COURSE OF A 20-YEAR RETIREMENT, THE ANNUITY AT TODAY’S RATES WOULD DELIVER AROUND 2022 2024 2042 £4,540 a year £7,000 a year FOR SOMEONE AGED 65 WITH NO HEALTH OR LIFESTYLE CONDITIONS TO DECLARE. AN INCREASE OF 54%, DRIVEN BY RISING INTEREST RATES AND THE RETURNS AVAILABLE ON GILTS. EXTRA INCOME COMPARED TO AN ANNUITY SOLD IN JANUARY 2022. £49,200 2 Canada Life benchmark annuity rates over time, £100,000 purchase price, 10-year guarantee, no health or lifestyle factors. 15-year gilt yields sourced from ft.com .

68. How lifetime annuity rates have changed over time Source: Canada Life annuity rates over time, as at 21/12/2023

69. Policy and regulatory drivers Consumer Duty FCA Thematic Review of Retirement A dvice Solvency II reform Advice Guidance Boundary Review

70. Thank you Canada Life Limited, registered in England and Wales no. 973271.  Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Canada Life International Limited, registered in the Isle of Man no. 033178C.  Registered office: Canada Life House, Isle of Man Business Park, Douglas, Isle of Man IM2 2QJ. Canada Life International Limited is an Isle of Man registered company authorised and regulated by the Isle of Man Financial Services Authority. CLI Institutional Limited, registered in the Isle of Man no. 108017C.  Registered office: Canada Life House, Isle of Man Business Park, Douglas, Isle of Man IM2 2QJ. CLI Institutional Limited is an Isle of Man registered company authorised and regulated by the Isle of Man Financial Services Authority. Canada Life International Assurance (Ireland) DAC, registered in Ireland no. 440141.  Registered office: Irish Life Centre, Lower Abbey Street, Dublin 1, Ireland. Canada Life International Assurance (Ireland) DAC is authorised and regulated by the Central Bank of Ireland. Category A Insurance Permit holder with the Jersey Financial Services Commission.  Canada Life Asset Management is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (registration no. 3846821), Canada Life Limited (registration no. 973271) and Canada Life European Real Estate Limited (registration no. 3846823) are all registered in England and Wales and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management Limited is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Canada Life Platform Limited, registered in England and Wales no. 8395855. Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Platform Limited is authorised and regulated by the Financial Conduct Authority.  Stonehaven UK Limited, trading as Canada Life, registered in England and Wales no. 05487702. Registered office: Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Stonehaven UK Limited is authorised and regulated by the Financial Conduct Authority. Canada Life and design are trademarks of The Canada Life Assurance Company. 1006XXXX - 0324 – Promotion approved xx/xx/24

71. Presentation Tish Hanifan, Founder and Joint Chair , Society of Later Life Advisers #RetirementIncome @ILCUK

72. Presentation Jim Boyd, CEO, Equity Release Council #RetirementIncome @ILCUK

73. Jim Boyd CEO Retirement Income Summit 2024

74. Death of final salary pensions Only 7% of private sector employees active members of DB schemes, compared to 82% in the public sector. (ONS 2020) £1000 of average employee’s final salary before retirement, can expect £150 annually from a DC scheme compared with £670 for DB. S hortfall will need to be funded somehow. H ard on pensioners. PLSA, shows the rising cost of living and an expectation to offer financial support to grandchildren pushed up income moderate standard of living in retirement by £8,000 over the last year.

75. Hard Choices 1). Load more weight on the shoulders of the younger generation . Huge, unfunded burden on the state. Cost of State pension £100bn+ annually (Statista 2022), more than half of the cost of the NHS. Finding more from government pockets to bridge income shortfalls burdens young, increasing intergenerational inequality. Pensioner benefit spending 2023-24 - 11.3% total public spending (10.7% in 2022-23)/ 5.1% GDP. (OBR) 2) Accept people will live longer in poverty 3) Find another way

76. There is another way Savills estimates: UK net housing wealth exceeds £7tn Owner-occupiers aged 65+ record £2.587 tn of net housing wealth in homes worth a total of £2.735 trillion.   Over 50s now hold 78% of all the UK's privately held housing wealth.  P ast 10 years, net housing wealth held by owner-occupiers aged 65+ risen by £1.111 trillion. UK pension wealth estimated at £6.45 tn – many older people have greater wealth in property than pensions. Yet when people consider retirement income, they tend to limit considerations to pensions wealth.

77. Barriers Lack of trust – in products and financial advice more broadly. E quity release transformed since 1980s: formal regulation, innovation with flexible products, Equity Release Council standards. Attitudes - Many elderly see later life products as “last resort” – a sign of failure; guilt denying an inheritance to young. Changing - 3 in 5 UK homeowners (nearly 19 m) interested in releasing money from their home in later life to meet needs. Biggest shift among 35-44 age group, 78% interested accessing money from value of future home. ( Home Advantage - polled 5,000 consumers) Lack of consumer awareness and fractured advice and regulatory silos – few know features and benefits of modern products. Approach financial adviser, no guarantee property wealth form part of the conversation. Many advisers work in silos – either looking at mortgages, equity release, or broader financial planning, but too seldom all areas at once. Regulatory framework does little to break down silos. Mortgages and equity release subject to different regulatory framework to ‘wealth’ advice. L ittle imperative for ‘wealth-based’ financial adviser to consider property wealth in client discussions.

78. Name one Solution “Set the path from the top “ Government leads the direction by setting out a new, empowering, narrative for the role housing wealth can play in later life and addressing legislative barriers. This requires the Government to develop a ‘blue print’ for the functioning use of housing wealth in later lending with the regulator, consumer groups and industry.  

79. What should be the priorities for the next government? Chair: Jackie Wells, Strategy and Policy Consultant #RetirementIncome @ILCUK

80. Chair: Jackie Wells Joanna Elson , Chief Executive, Independent Age, @IndependentAge Mick McAteer, Founder & Co-Director, The Financial Inclusion Centre, @MickMcAteer Steve Groves, Chairman, Key Group  #RetirementIncome @ILCUK

81. Summit Close Anusha Mittal, Managing Director, Individual Life and Pensions, M&G #RetirementIncome @ILCUK

82. A big thank you to all contributors, attendees and our sponsors #RetirementIncome @ILCUK