After more than a year of debate, the latest Pension Reform White Paper clarifies a number of uncertainties that have been of concern to insurers but leaves several questions unanswered. It suggests a number of opportunities for insurers to explore, while raising critical strategic issues.

Overall level of savings will increase
The latest Pensions White Paper largely endorses the central recommendations of the Pensions Commission. Apart from significant changes in the state pension system, it proposes creation of Personal Accounts into which most employees in all companies will be auto-enrolled, unless that company seeks exemption and auto-enrols employees in an existing pension scheme.

As a result of the introduction of Personal Accounts, it is expected that the number of private sector firms contributing to employees’ pensions will rise from approximately 132,000 to close to 1 million. Deloitte estimates that the number of private sector employees in workplace pension schemes could grow by around 50% from 5-6m to 7-8m with approximately 4-5 million joining Personal Accounts. The precise mix will depend upon the number of existing schemes that either remain open to auto-enrolment or close. The additional savings of £8bn will similarly be spread between workplace pensions and Personal Accounts. Some of the £8bn is expected to be a recycling of existing savings from ISAs and other sources.

The funds gathered under Personal Accounts will be managed on a wholesale basis by private sector investment managers. The Delivery Authority is expected to establish a single default fund with life styling and a small number of other bulk purchased funds with scope remaining for some more specialised branded funds.  The administration of Personal Accounts will be undertaken centrally, although the door has not been totally closed on branded choice through insurers being available at some, undetermined, point in the future.  It is likely that the private sector will be asked to tender for the central administration of Personal Accounts.

For more information download our response to the Government's Pension Reform White Paper (295KB, PDF)

Press release
Pension reform: £8 billion of new savings for 8 million new savers

Related links
Our previous responses to the Government's pension reforms and the Turner Report