UK - The state pensions system could cost at least 0.8% of GDP more than the government estimate of 5.8% of GDP by 2050, a report by the Pensions Policy Institute (PPI) has found.
The report, “What will pensions cost in future?”, also forecast that the total income received by older people from private pensions could decline over the long term if the shift from defined benefit to defined contribution schemes means a reduction in total private pension contributions.
Even if contributions do reduce, tax relief on private pension saving is likely to remain a significant cost to the government, it warned.
According to the report, all the proposals for state pension reform currently being discussed will cost more than the current system because they seek to improve pension outcomes.
By way of example, it indicated the “wide funnel of doubt” surrounding the future cost of pension credit, a means-tested benefit which will depend on the future performance of the private pensions sector. Because it is based on the extent to which older people work, it can not be forecast with certainty.
Currently around 75% of people with some entitlement take up the entitlement, the report noted. In future, the relative size of entitlements will increase under current government policy, and so more people might take up their entitlements.
A stable system should be designed to be sustainable for tomorrow’s elderly too, the report concluded.
A number of pension schemes have been prompted to lock in gains with a move into bonds after the estimated deficit across FTSE 100 DB pension schemes improved by £36bn, over the 12 months ending 30 June last year, JLT Employment Benefits found.
HM Treasury has agreed in principle to give NEST a £329m contingent liability guarantee in the event of the master trust's wind up or closure.
AMP Capital has set up a dedicated team to help institutional investors, including pension funds, invest in infrastructure through direct equity allocations.