Short Introduction to the pension system in the United Kingdom

Transcription

1 The right to retirement pension information (Madrid, July 2013) United Kingdom 1 Alan Napier Department for Work & Pensions Jackie Spencer Money Advice Service Short Introduction to the pension system in the United Kingdom The current UK Pillar 1 (state pension) is two tier: basic pension based on a person s National Insurance contribution history; additional pension an earnings related element introduced in 1961, and from 2002, extended to carers. Proposals for a single-tier state pension are currently before the UK Parliament. The single tier state pension would be a flat-rate pension set above the basic level of means-tested support for pensioners (currently a week for single pensioners). People will need 35 qualifying years to qualify for the full amount. There will also be a minimum qualifying period of between seven and ten qualifying years, capped at ten years. These reforms are designed to: deliver simplicity a simpler flat-rate state pension for future pensioners providing a clear foundation for retirement saving; reduce means testing; bring forward the equalisation of state pension outcomes between men and women; support the rollout of automatic enrolment into workplace pensions; and help ensure sustainability of the state pension in the longer term. The UK state pension system is complemented by a mature Pillar 3 private pensions regime offered by employers. Traditionally UK private pensions have been defined benefit (DB), but in common with many other countries, DB is being replaced by defined contribution (DC) products and in private pension saving has been in decline. From October 2012, the UK began to roll-out a programme of automatic enrolment into workplace pensions. When complete in 2018, employers will have a duty to enrol 1 Prepared for the Peer Review in Social Protection and Social Inclusion programme coordinated by ÖSB Consulting, the Institute for Employment Studies (IES) and Applica, and funded by the European Commission. ÖSB Consulting,

2 all eligible jobholders aged between 22 and state pension age into a workplace pension. Early signs are excellent - over 400 employers are now meeting their automatic enrolment duties with over 500,000 workers newly enrolled into a workplace pension by the end of April this year, with opt out rates no more than 1 in Extent of the information on pension rights 1.1. Which actor(s) provide(s) pension communication (e.g. the government, insurance companies, pension funds, national pension authority, )? Is this pension information provided on a legal obligatory basis and/or on voluntary basis? State Pension - UK Government. Private pension providers Law sets out information to be given to members of occupational schemes, and personal pension plan holders What is the content of the communication on pension rights (e.g. name, profession, employer, social security number, acquired rights, deferred rights, etc.)? State pension specific to the member. Private pension providers name and address of institution, acquired and deferred rights What is the periodicity of the communication (e.g. annual, monthly, permanently available through the internet, )? A State Pension calculator is available online that allows the user to calculate when they ll reach State Pension age and how much they may get in today s money for basic State Pension. For a personalised projection, State Pension statements (forecasts) are available on request either online ( or by post for people living in the UK more and are more than 4 months away from State Pension age Is information general or specific (related to the recipient)? Specific How is the retirement pension in the communication calculated? State and private pension estimates are expressed in today s prices. DB Private Pension estimates are expressed in terms of the current salary continuing until retirement. DC Private Pension estimated are expressed in terms of a statutory money purchase illustration (SMPI) is an annual illustration of the estimated pension a member might get on retirement. The law required SMPIs to be produced in accordance with Government approved actuarial guidance. The law is reinforced and monitored by the Financial Conduct Authority and The Pensions Regulator. 2

3 The estimated pension figure at retirement is expressed in today s prices, calculated by: taking the value of the pension fund at a given date; taking into account regular contributions (assumed to be paid at their current level until retirement age is reached); estimating investment growth (2%, 5% or 8%), and charges. This final fund value is then used to provide a retirement income figure based on annuity rate assumptions Are prospects, estimates, simulations, being made (e.g. information regarding benefits at an earlier or later age than the statutory retirement age)? Not by law but consumers can request projections from their pension provider or access their State Pension estimated entitlements via the online calculator (See 1.3) 1.7. For funded schemes: what assumptions are used with regard to the rate of return, the interest rate and the inflation? See Are these assumptions communicated? Yes Who determines these assumptions? See Are these assumptions checked by the government? See Is the communication integrated (covers all possible pension schemes, irrespective of pillars or other elements)? If yes, is it also consolidated (information on public and private pension rights are communicated together)? We have a programme of integrated statements. 3

4 2. Manner of the communication 2.1. By which means is the information provided to the citizen (e.g. by ordinary mail, internet website, , mobile phones )? The State Pension estimates are available online or post (See 1.3). Private pension providers the law merely requires the information to be furnished. Providers may use the medium they wish. The common practice is to provide one statement annually via post and a login ID to the pension provider s website to access personal pension information If the information is provided by using the internet, how is the user identified? Self-identification Is extra information or comment on pension rights provided (e.g. by call centre, invitations for personal communication, chat sessions with the pension institution )? Government provides facilities for personal communication Private pensions providers scheme specific, but dispute resolution procedures set out in law Is there any control whether the recipient has received and opened the message? Not by law Is the information provided on request of the person concerned or automatically by the Social Security System itself? State Pension Statement is provided on request. Private pensions providers new member information is supplied automatically, annual statements minimum on request for DB schemes, and mandatory annual statements for DC schemes In which language(s) is the information available? Who establishes the language of the communication? On what grounds? English and Welsh (Welsh Language Act 1993) Are estimated amounts given in current or future value? Current. 4

5 2.8. Are absolute numbers or percentages used? Cash amounts Are numbers rounded (no figures after the comma)? No Are visual effects used (e.g. charts, colours, drawings, )? State Pension No. Private pension providers Scheme specific (not required in law) What is the assumed level of understanding of the recipient? UK makes no assumptions communications must be in plain English (How) is the financial (il)literacy of the recipient taken into account? Communications must be in plain English but overall financial literacy is not taken into account Is the communication layered (e.g. the older a person gets or the further one looks into a website, the more detailed the information )? Overall, there are no set standards for communication but with the introduction of automatic enrolment into a workplace pension, the Government alongside nongovernmental organisations have developed a layered communication approach for employers to communicate to their workers about workplace pensions Is communication standardized (by various pension actors) relating to terminology, wording of the content, tables and/or graphs? (please specify) No. UK Government is working with the financial services industry and nongovernmental organisations such as the Money Advice Service ( and the Pensions Advisory Service ( on a common language and uniform information standards. A language guide was published in July 2011 and can be found Is pension information centralized (retained in one single administration, body or database) and/or decentralized (e.g. cross-roads bank) State Pension held by Government. Private pension providers held by each institution. 5

6 2.16. Is pension information embedded with other information (e.g. in general social security information, bank or insurance communication )? No. 3. Target group of the communication 3.1. To whom is the communication targeted? (e.g. active workers, self-employed, salaried workers, civil servants, deferred beneficiaries meaning so-called sleepers with dormant rights..)? State pension all citizens of working age. Private pension providers - Active and dormant workers From what age onwards do citizens receive the communication and how much time prior to the statutory retirement age is the information provided? State Pension information is provided anytime up to 4 months from State Pension age (30 days if by post). Private pension providers furnish information annually to scheme members What requirements must the citizens comply with in order to get the information (if any)? State Pension online statements the citizen must register with the Government Gateway - a centralised registration service for UK e-government services in the UK to receive a personalised statement. A general projection can be given via the State Pension calculator which doesn t require any registration. 4. The legal value and authenticity of the communication 4.1. Does the current legislation provide a right to pension information (if so, how is it formulated)? State Pension No specific legislation, this is an administrative function of Government. Private pensions providers Set out in legislation (Pension Schemes Act 1993) What future legislation on pension communication is envisaged (if any)? Private pension providers currently consulting on modernized regulation. 6

7 4.3. What is the material and personal scope of the current and/or future legislation? 4.4. How are the necessary data provided to the authority/institution responsible for the information on pension rights? 4.5. Who owns the pension data and who validates them? State Pension Government. Private pension providers Each individual schemes has their pension data validated by actuary Is there a central database or not? And if so, is it solely responsible for the data? State Pension yes. Private pension provider Each provider has their own database Is the communication authenticated in one or the other way? 4.8. Is the recipient of the information asked to verify the information? State and Private members encouraged to check accuracy of the data In case of wrong communication, who is held responsible (e.g. the owner of the data and/or the provider of the data and/or the communicator)? Does the communication create a legitimate expectation whereby a possible beneficiary can have a claim against the pension provider (e.g. in case of a wrong prospect of simulation)? No What are the legal disclaimers used? 7

8 4.12. How is the privacy of the recipients respected, in particular when the internet is used as communication channel? State pension - Discrete ID. Private pension providers Schemes must conform with provisions of the Data Protection Act. Members are usually given an ID. 8