- New TPR analysis shows a five‑year career break in the
first 10 years of working life can reduce retirement pot sizes by
around 16%
- Trustees urged to consider cohorts based
on contribution patterns when designing future
default pension strategies
- People's working lives have changed - and pension
schemes must design for the savers they actually have, not
the savers they once assumed.
That's the message from The Pensions Regulator (TPR) as
Director of Strategy and Communications Patrick Coyne explores
the importance of understanding modern saver patterns when
implementing future default pension plans.
Writing in a new blog today, Patrick reflects on
how the upcoming reforms in the Pension Schemes Bill mark a major
shift: from a pension system built around savings, to one focused
on delivering sustainable income in retirement.
TPR's new analysis shows career breaks - which are
common and predictable - can have a significant and
long‑lasting impact on retirement outcomes.
Savers who take a career break within the first 10 years face a
pot around 16% lower at retirement.
As schemes begin preparing for default pension plans under the
guided retirement duty, Patrick argues there is a real
opportunity for trustees to recognise these patterns and
design smarter default strategies based on the wealth of
data they hold on people with similar
characteristics.
“Working lives are uneven. Contributions pause, earnings vary,
and caring responsibilities interrupt careers. These patterns are
widespread and economically significant - and our
defaults need to reflect this,” Patrick writes.
“Earlier breaks remove contributions at the point where they
would otherwise likely have the longest exposure to risk and
hence returns. And because these breaks are disproportionately
taken by women, and typically earlier rather than later in a
career, the pattern we see is inherently an equity issue. A
fairness issue.”
He highlights that while auto-enrolment radically increased
participation, the next phase of reform is about
outcomes: ensuring that millions of savers are supported
with sustainable income through retirement.
Patrick notes that a form of cohorting already
happens (based on age, and termed ‘lifestyling') meaning
that trustees and providers already hold much of
the data needed to better understand contribution
patterns He suggests that modest, evidence‑based
adjustments for certain cohorts could improve equity and help
fulfil fiduciary duties. The best will consider how to use
defaults to deliver better outcomes for cohorts facing similar
challenges.
“If the objective from pension saving is generating a
sustainable income for savers, then strategy design must reflect
systemic risk.
“Clearly, this does not mean individual tailoring at scale.
But it does mean understanding your members and seeing if there
are perhaps one or two defined cohorts, where modest
differentiation could really make a difference.”
he says.
TPR will support the development of secondary legislation with
new guidance to help schemes meet their obligations under the
guided retirement duty. Patrick also emphasises that
innovation by the pensions industry has an important
role to play, as legislation is not prescriptive on the
model used or how income in retirement should be delivered.
He concludes that the UK pensions system has
made significant progress in
participation, scale and governance - but
participation alone is not the destination. A sustainable income
in retirement is.
Read the blog: People's lives are
different - we must understand savers to design defaults for
retirement
Notes to editors
About default pension plans
The Pension Schemes Bill sets a pathway toward default pension
plans designed to support savers throughout retirement. The
guided retirement duty requires schemes to help deliver
sustainable retiree incomes.
Career breaks and saver outcomes
TPR's analysis highlights the impact of interrupted
contributions -often caused by caring
responsibilities -which can significantly reduce pot sizes,
particularly when breaks occur early in working life. These
patterns disproportionately affect women.
Cohorts and default design
Patrick Coyne highlights that understanding predictable saver
patterns, such as irregular contribution histories, presents an
opportunity for schemes to consider modest differentiation within
default design to improve outcomes.
The Pensions Regulator
The Pensions Regulator is the regulator of work-based pension
schemes in the UK. Our statutory objectives are
to:
- protect members' benefits
- reduce the risk of calls on the Pension Protection Fund
- promote, and improve understanding of, the good
administration of work-based pension schemes
- maximise employer compliance with automatic enrolment
duties
- minimise any adverse impact on the sustainable growth of
employers (in relation to functions under Part 3 of the Pensions
Act 2004)
