An explanation of the methodologies behind each of the graphics used in TPR Strategy: Pensions of the future.
Savers’ relative reliance on wealth sources at retirement graphic
- Defined Benefit (DB) savings cover private and public workplace pensions.
- Defined Contribution (DC) covers all workplace and private pensions savings.
- Baseline State Pension set at average of £129.20 per week.
- DB to DC transfer rate is assumed to be 0.5% per annum (pa).
- Millennials – aged 18 to 34 between 2014 and 2016.
- Generation X – aged 35 to 54 between 2014 and 2016.
- Baby boomers – aged 55 to 64 between 2014 and 2016.
- Low income band – less than £10,000 pa for millennials and Generation X; less than £10,000 pa and wealth below £135,000 for Baby Boomers – income for future accrual is assumed to be £10,000 pa.
- Medium income band – between £10,000 pa and £40,000 pa for millennials and Generation X; between £10,000 pa and £30,000 pa and wealth less than £400,000 for Baby Boomers – income for future accrual is assumed to be £20,000 pa.
- High income band ranges above £30,000 pa for millennials and Generation X; above £30,000 pa or wealth above £400,000 for Baby Boomers – income for future accrual is assumed to be £45,000 pa.
- Due to current low levels of savings and the widening of the role of pensions, other financial wealth for Millennials and Generation X earning less than £30,000 assumed between 0 and 10% lower than that of otherwise similar Baby Boomers.
- DC investment growth is assumed to be 4% real.
- DB accrual rate for future accruals is assumed to be 1/57th.
- Annuity Rates are assumed to be 3.5%.
Multiple alternatives to the financial assumptions above were tested to ensure that the high, middle and low reliance metrics were broadly consistent across different possible future scenarios.
Additional data sources: Wealth and Assets Survey, Office for National Statistics (ONS)
Active workplace pension savers graphic
- DC earnings growth equals 2% pa real.
- DC at retirement transfers based on Broadridge Insight estimates.
- DB to DC transfers based on 10% of Broadridge Insight estimates of annual DB transfers. [This makes the transfers figures to DC for period 2018 to 2028 consistent with Broadridge estimates. We don’t know what percentage of transfers end up in Self-Invested Personal Pensions / single member Small Self-Administered Schemes etc].
- DB active savers historic figures based on Pension Protection Fund (PPF) Purple Book / Projections assume decline of 2.5% pa.
- DC active savers - historic based on mix of The Pensions Regulator (TPR) and Broadridge Insight data. Forecasts up to 2028 based on Broadridge Insight projections. Forecasts post 2028 assume zero growth and based on ONS working age population projections.
DB obligations / DC assets graphic
- DB liabilities based on buyout estimates and forecasts for all private sector Defined Benefits schemes. These include liabilities for active employees, deferred pensioners and pensioners.
- DC assets cover all workplace pensions (trust and contract based).
- Figures reported in constant terms (2020).
- Historic DB estimates are a blend of internal TPR analysis and PPF Purple Book data adjusted for Consumer Price Inflation (CPI).
- Historic DC estimates are also a mix of TPR data and Broadridge Insight estimates adjusted for CPI.
- DB figures include projections for future accruals.
- The DB liability curve assumes that the cost of buying-out DB liabilities will remain unchanged over the period of projection.
- DB exits assumed at £15 billion pa.
- DC investment growth equals 4% pa real.