Chapter 1: 'Introduction'

This Chapter is a scene-setter for the remainder of the Report. We begin by considering how pension schemes have traditionally been used and also how they are likely to be used in future following the introduction of the pension reforms announced in the 2014 Budget. These reforms furnish us with an opportunity to ask anew what a ‘good’ pension scheme should aim to achieve. There are also risks involved in the provision of pensions and we discuss the key ones. Unfortunately, widespread evidence shows that many if not most pension scheme members do not understand these risks and are unlikely ever to do so, however much guidance or education they receive. This will make it difficult for many of them to make informed choices about how they spend their retirement savings that takes these risks into account. This, in turn, raises the question about whether scheme members should be nudged (or even defaulted) into a well-designed decumulation product that has dealt with these risks in the most efficient and cost-effective ways possible – with the option to opt out, as in the case of auto-enrolment. We then consider the different types of pension member affected by the reforms. Finally, we discuss the attitudes of employers, consultants, providers, investment managers, and trade unions to the reforms.