Introduction
Most of us can remember our first taste of freedom, be it the wind blowing through our hair as we hurtled downhill without training wheels for the first time, or our foray onto a train to see a friend across town, with no accompanying adult in sight, or partaking in the conviviality that is Freshers’ Week.

I say most of us as some may not remember that last example too well.

But each experience paves the way to greater independence. Often a bit of pain involved too – skinning our knee as we wobbled on that first two-wheel ride; getting off at the wrong station; or nursing the consequences of a night out on campus.

What does this have to do with pensions?

A decade ago, pension freedoms allowed those over 55 greater flexibility in accessing pension savings.

With freedom comes responsibility, particularly given the consequences for your future.

We know that freedom tastes all the better with some guidance and steering along the way – whether it is to wear long trousers before your first bike ride, have a designated meeting point if we get off at the wrong train stop, or take a Berocca before Freshers’ night.

And it is all the more important to get that support with a pension so that you can maximise your financial freedom in retirement.

We can look to the past to see where we can learn from mistakes or how we can bolster the future. But there is much we can do in the present.

Surveying today’s pensions landscape, we must ask ourselves: are we saving enough, are the returns good enough and are we getting the right support to navigate the complex decisions?

And are funds invested in a way that is good for the economy over the long-term?

The pensions adequacy question
Over the last 12 years, millions have been enrolled in workplace pensions for the first time due to auto-enrolment. Today, 88% of workers have a workplace pension – up from 55% in 2012.

We should recognise auto enrolment for the success it has been.

But significant gaps and inadequacies remain.

Much depends on what generation you belong to.

One in 5 single pensioners has no income beyond the state pension and benefits to rely on.

Many retiring in a decade or two did not have access to workplace pensions early in their career and were also shut out of defined benefit pensions – so may well face a shortfall.

And while younger generations have the advantage of auto-enrolment, many feel too stretched with high rents and student loans to prioritise retirement savings.

Even before we mention the higher costs of home ownership.

Half of first-time buyers now take out home loans with terms greater than 30 years – doubling over a decade.

Many will not repay their mortgage until they are close to or over 70.

This cohort is also likely to face pressures funding more of their health and social care too.

There are also those that aren’t captured by auto-enrolment, such as the self-employed and lower earners.

There remains a gender gap – leaving women 35% poorer when it comes to their private pension pots.

The FCA’s Financial Lives Survey highlights that adults from black, Asian or mixed ethnicity backgrounds have lower private pension provision than white adults.

The pensions adequacy question – how to make system fit for the future
To work out whether we are saving enough, we must ask what will pensions be expected to pay for?

To have a comfortable living in retirement today with a reasonable amount of financial freedom, a single person needs around £43,000 a year today, according to the Pension and Lifetime Savings Association (PLSA).

To survive, they would need £14,000 and to have a moderate lifestyle, they would need over £31,000.

This assumes home ownership and continued state pension provision. None of these projections assume having to pay for social or health care.

If you earn a median salary and save at a minimum rate with a full state pension, you will fall between the moderate and minimum standard.

Some want us to emulate countries like Australia, where employer contributions to the Superannuation fund are 11%, increasing to 12% in 2025.

In the UK, the total minimum contribution is 8% with the employer legally obliged to pay 3%. Lower than the amount contributed on behalf of an employee in a DB scheme, but still an affordability challenge for many businesses.

The Association of British Insurers (ABI) and others have called for contributions to rise to 12%. The PLSA has similarly said that 12%, and a later retirement date, could bring savers closer to an adequate retirement income.

Most of us are still not saving enough or engaging early enough with our pensions’ investments. Whatever the route to improving this and this is challenging as we come through of a cost-of-living squeeze, addressing the adequacy of savings is vital.

Are products (and returns) good enough?
Beyond saving more, we also need to test whether current products make the most of what savings are already accumulating. Does our pensions system support the risk appetite savers – and our economy – needs?

As you have heard this morning, the Government is approaching this question through proposed structural reforms, with a consolidation agenda for schemes not delivering value.

The proposed pension pot for life – which the Budget confirmed was being explored – could add simplicity but would also be a profound change to the system and the role of employers.

Collective Defined Contribution schemes are increasingly talked about as a route to increasing returns. Royal Mail has gone first. Some see this as way of rebuilding pensions as an income for life. However, CDCs are also complex and both the scheme and any communication to savers must be managed carefully.

CDC and the pension pot for life would need a clear delivery road map stretching over a decade. And once that map has been agreed, we will need a period of stability to focus on execution.

Structural reforms aside, we should also challenge ourselves whether products deliver the value they should.

The concept of value underpins our recently introduced Consumer Duty.

More than 9 out of 10 workplace pension holders leave their funds in their employer’s default scheme, so whether these deliver value matters enormously to outcomes. Under the Consumer Duty, industry can help by making good products the default, even if someone is not engaged.

Our proposed Value for Money framework, as the Chancellor has said, will refocus scrutiny away from a simple view on short-term fees.

The consultation proposals will require operators to be transparent about their investment returns, costs, and other metrics, allowing scrutiny as to whether value is genuinely achieved over the long term.

The aim is to protect consumers from having their pension savings eroded by languishing in underperforming schemes.

The framework and focus on overall value encourage consideration of a broader range of asset classes, hopefully leading to diversification and better long-term risk-adjusted returns.

Future of productive finance and capital markets
Driving a long-term focus on Value for Money could encourage more investment in productive assets, supporting economic growth.

This has particular relevance as pensions are reaching a crossover point: Latest data shows there were £1.4tn in assets in private DB at the end of last year – excluding assets in schemes winding up and the local government pension scheme.

We don’t yet have all the 2023 data for the DC market, but assets in workplace and non-workplace DC were around £1.4tn in 2022. The shift from DB to DC will accelerate as assets in DC continue to grow rapidly

Both DB and DC pots are significant pools of capital.

But as the Chancellor set out last week, just 5% or less of UK pension assets are invested in the UK economy – far less than in other countries.
Defined benefit money is flowing to insurers in buyouts.

We will work with the PRA (Prudential Regulation Authority) and The Pensions Regulator to manage potential risks and support the development of a more positive ecosystem for UK investment.

It is not for us as regulators to direct how schemes invest, but we want to remove inappropriate barriers.

Industry also needs to tackle questions about cost, scale, cultural barriers and risk appetite, and how different players in the market work together.

Last year, we published rules which broadened retail and pensions access to the Long Term Asset Fund (LTAF), and three umbrella funds alongside 5 sub-funds, have now been authorised, with a strong pipeline, and more expected shortly. The target assets under management after 3 years for LTAFs authorised to date is nearly £6 billion.

It is also important that those that give advice to schemes, trustees and employers – typically consultants not currently regulated for that service, and we have recommended they should be – are set up and incentivised to provide recommendations focused on long term value.

Advice Guidance Boundary Review
However well pension schemes are invested, when retirement approaches, consumers have to choose how to turn their savings into income.

Almost a decade after pension freedoms, those decisions become harder. Those retiring today may still have a steady income from a DB scheme, supplemented by a DC pot. Over time, more people approaching retirement will only have a DC pot on which to rely.

The DC system expects consumers to take greater personal responsibility. Pensions is however a market marked by inertia, a lack of consumer understanding and ridden by fear.

Most people never switch funds, many do not take timely advice in the years or decades before retirement, and half admit to being totally disengaged when it comes to pensions.

We want to empower and support consumers through our work with the Treasury on the Advice Guidance Boundary Review launched last year.

More than half (53.58%) of all pots accessed for the first time in the contract-based retirement income market were accessed without advice or guidance. More than a third – 34% – of over-45s with DC funds don’t understand their decumulation options.

That is why the Advice Guidance Boundary Review is important: too few people seek financial advice, so we need new mechanisms to ensure consumers have the support they need.

We want to support the emergence of commercially viable, high-quality models of support for consumers to access through regulated channels. We are open-minded as to how digitalisation can support these goals.

That means firms will have to manage risk rather than eliminate it. Firms must overcome their reticence to offer support for fear of being too close to the boundary or due to an overly cautious risk appetite.

Of course, consumers need to accept that any investment carries risk, but we must be clear that receiving no support at all carries greater risk.

The AGBR builds on the experiences of the requirement for firms to offer pension pathways for certain situations. Default products akin to pathways could make consumer choices easier, and we have already observed some product innovation.

Such support does not eliminate the need for consumers to engage and pension dashboards – which the FCA supports – are a tool that can help with that.

A secure digital interface where consumers can find clear information about their pensions as they build up their savings.

This should make it easier to plan for retirement, get advice and make informed decisions.

Tackling fraud, protecting our markets and promoting competition
As we pursue pensions reform, we won’t lose sight of our core objectives either. We have primary objectives to protect consumers and market integrity. That is why we have had a relentless focus on preventing scams and fraud.

We have seen scammers contact consumers, posing as a firm or even the FCA, promising to help them release their pension before they are 55. These are in fact often frauds.

Our ScamSmart campaign aims to empower consumers by making it easy for them to check an investment or pension opportunity.

Following our intervention on financial promotions, we have also seen a withdrawal or change to more than 10,000 potentially misleading advertisements in the last year, up 17% on the previous year.

We are alert to the fact that when pension dashboards go live, risks of scams may increase, and we want to work with you on measures to mitigate those risks.

We are also intervening where we see poor practice in firms, such as pockets of poor practice in SIPP (Self Invested Personal Pension) markets. Operators must act to deliver good outcomes for retail customers and avoid causing foreseeable harm to them.

In December, we highlighted that the treatment of interest earned by firms on customers’ cash balances, including in SIPPs, may not be in line with the Consumer Duty.

We expect firms to ensure that their retention of interest on cash balances provides fair value and is understood by consumers.

It is not unreasonable to expect firms to review their approach and stop double-dipping – charging high fees but also taking a significant chunk of interest.

On a separate note, our work on Liability Driven Investment – LDI – highlights how we often work with other regulators and government on thornier issues.

Before the LDI shock, we had a well-established system for dealing with systemic financial risk; one that was based on severe stress tests rather than nearly implausible ones.

We recognise that the use of LDI was intended to avoid volatility for Defined Benefit schemes.

But lessons have been learned and we have set out guidance for firms to develop increased resilience to deal with possible future volatility.

Conclusion
From looking to how we can invest more at home to looking at best practice abroad: No conversation about pensions is complete without international comparison.

But we need to be mindful that jurisdictional histories determine where we and they are now and so not all ideas are immediately transferable across borders.

As an aside, the UK’s pension system ranks reasonably well in comparative rankings in analyses of retirement savings across the globe. We will need to work hard to keep it that way or even improve.

There is a window of opportunity now, as we reach this generational crossover, to put in a framework fit for the future. A collective conversation has started on what we want from the system.

But there is no need for consumers, regulators or industry to wait for the outcome to emerge before taking action to engage consumers.

We can try to save more, receive, seek and impart better support and advice, improve value through transparency and hold a serious conversation about risk. We can check whether products really are value and are in invested in the right areas for savers and the economy.

Later life – for the lucky ones who get there – has a habit of sneaking up on you.

Taking action now rather than waiting for a future perfect solution – will ensure those golden years are all the more fulfilling.