Impact case study database

The Financial Mathematics group at King’s collaborates with the Pensions Policy Institute (PPI) on developing statistical simulation models for risk analysis of UK pensions schemes. The models have been used extensively by PPI in their research and publications. This in turn has informed and influenced other organisations. Key examples include impacts on financial firm Columbia Threadneedle Investments, whose thought leadership in the pensions landscape has been enhanced by drawing on these models, and on campaigning charity Age UK, whose lobbying activities have been strengthened by the models. Most significantly, these models have been used in major policy development work by the UK government Department of Work and Pensions (DWP), including the highly successful auto-enrolment pensions scheme which has resulted in more than 10,000,000 new eligible employees participating in the workplace pension in the UK [S7].

Key impact pathway: the Pensions Policy Institute (PPI)

The PPI is an independent research charity that was established in 2001. PPI produces a large number of research reports on a variety of pension related topics which it uses to inform policy and policy debates by providing evidence-based research about the pensions landscape.

The Economic Scenario Generator (ESG), based on King’s research [R1-R5], has been key component of PPI reports and modelling since it was first used in the Automatic Enrolment study published in 2013 [S8d]. It is used in the PPI’s key models such as their Individual Model, which models the retirement income of individuals, and the Aggregate Model, which projects government expenditure on pensions [S2]. Over the last three years alone the PPI has used these pension models in 35% of its published research reports [S1, p.5]. In addition, there has been significant usage of the models in its production of briefing notes. Significant recent examples include the 2017 report that explores the role that behavioural techniques play alongside other policy levers to help people achieve better long-term saving outcomes [S9f], the 2019 report showing that women have around 28% lower pensions savings and income than men [S8a], and the September 2020 briefing note on proposed changes to the state pension scheme resulting from the Covid-19 pandemic [S8b].

Since 2013, the PPI has had regular interactions with DWP ministers and officials and share all their work with a range of politicians, civil servants and key policy stakeholders [S3]. Several PPI reports, underpinned by the ESG, were also sponsored by the DWP to look at how to best develop and roll out the Auto Enrolment pension scheme and to look at a potential CDC scheme under different assumptions to determine whether CDC produces better results compared to DC and in what circumstances [S2]. In conjunction with the release of research reports, PPI runs awareness-raising and information events (46 since 2015) which are well attended by the pensions industry [S1 p.27]. According to testimonial from a senior policy manager of Age UK, the PPI reports and events have been a key pathway to developing greater understanding of pensions issues among policymakers and other stakeholders in the UK [S5].

Informing the Department of Work and Pensions’ policy development work

PPI’s publications using the ESG has formed an integral part of the evidence base DWP used for developing the automatic enrolment pension policy. In particular, DWP’s 2017 Automatic Enrolment Review [S10a] builds conclusions based on evidence from the PPI report Consumer engagement: the role of policy through the life course (2017) [S9f], the modelling in which uses the ESG. The DWP’s 2019 Automatic Enrolment Review [S10c] also references another PPI report Policies for increasing long-term saving of the self-employed (2017) [S9g], which again uses the ESG for its modelling. [S3]

Other examples of PPI work based on the ESG shared and used by the DWP include: Automatic Enrolment Report 2: The benefits of automatic enrolment and workplace pensions for older workers (2014) [S9a]; Automatic Enrolment Report 3: How will automatic enrolment affect pension saving? (2014) [S9b]; Briefing note 105: The impact of the introduction of automatic enrolment on future generations (2018) [S9c]; Automatic enrolment in the gig economy: modelling for Zurich (2018) [S9d]; Increasing Savings in Automatic Enrolment: Analysis Sponsored by Which? (2019) [S9e]. [S3]

Between 2016 – 2019, several of the ESG based PPI reports were cited in Parliamentary debates as evidence [S3, p.2], and the 2015 report Modelling Collective Defined Contribution Schemes [S8c] was also referenced by the House of Commons Work and Pensions Committee in 2018 and fed into their recommendations [S10b]. The PPI models, underpinned by ESG, were also used by DWP when assessing pensions schemes for the self-employed [S1 p.9]. Information presented in the DC Future Book (an annual PPI publication) and the 2019 research report on Pension Charging Structures and Beyond, both of which used the ESG, has also been used by the DWP to inform their policy development [S4].

“The team at DWP have used the results from the King’s College financial mathematics department’s stochastic model for pensions and investments to inform policy development. [For example] the forecasts of Defined Contribution scheme assets up until 2039 have been especially useful for informing our evidence base and supporting longer term policy thinking. The Pensions Charges Survey for 2020 has been compiled with reference to the outputs from the models that were presented in the Pension Charging Structures and Beyond report on the median impact of various charging structures on fund values.” - Joint Heads of Private Pensions Analysis, Department of Work and Pensions [S4]

Strengthening pensions campaigning in the charity sector: Age UK

Age UK is a leading UK-wide charity network dedicated to helping people in later life. As well as helping older people directly, it also campaigns and lobbies the government and the pensions industry on various issues around the economic and social well-being of the elderly population in the UK. It regularly draws on PPI publications based on the King’s research: this has guided and informed Age UK’s campaigning work and policy decisions. [S5]

Age UK also commissioned research in 2019 from PPI, underpinned by the King’s models, with the goal of understanding the pensions landscape and forecasting its future, obtaining data and statistical backing for policy arguments and campaigning:

“This modelling project, like the previous Age-UK-commissioned modelling projects around the State Pension Age and Triple Lock, has delivered on its goal. As evidenced by the Triple Lock modelling, the findings of these analyses can be useful years after they are conducted. Age UK continues to use the State Pension Age related data for current arguments being put to the government. It also still considers the projections on how many pensioners will be left in poverty if the Triple Lock is removed while making policy decisions.

Such use of the PPI’s work also helps lay the foundations of an evidence-based way of making pensions policy. This has had significant demonstrable impact on protecting certain useful policies such as auto-enrolment in difficult times such as this present COVID-19 pandemic when businesses are leaning towards suspending auto-enrolment to save money.” - Senior Policy Manager, Age UK [S5]

These examples illustrate the centrality of the PPI’s modelling to pensions policy in the UK: modelling which is underpinned by the research of the King’s FM group.

Raising the profile of Columbia Threadneedle Investments

The DC Future Book, underpinned by the ESG model, is an annual statistical compendium and review which has been published by the PPI since 2015. The focus is on the Direct Contribution (DC) pensions market. The latest edition was published in September 2019 and was sponsored by Columbia Threadneedle Investments (CTI), a global asset management group which manages investments totalling GBP385,000,000 for individual investors, financial advisers and wealth managers, as well as insurance firms, pension funds and other institutions. The aim of the publication is to promote a better understanding of the DC pensions market in the UK.

The Future Book uses the ESG pension model to forecast the DC pensions landscape. This analysis is complemented by the publication of articles and thought pieces which aim to increase stakeholder engagement from policy makers, regulators, activists, and pension scheme trustees. [S1 p.9]

“The profile of CTI has risen dramatically as a consequence of its association with The DC Future Book - CTI now being recognised as a genuine thought leader in the DC space. Moreover, The DC Future Book continues to influence and assist CTI’s thinking around how DC pension savers and investors might achieve better outcomes and has allowed us to gain traction with both policymakers and regulators. The models are a dominant feature of The DC Future Book and they will continue to be so.

“Without exaggeration, The DC Future Book itself has been a catalyst for change in the pensions industry and remains a unique publication. Crucially, the independence of the PPI has driven much of the success of the publication. Although The DC Future Book has a significantly higher profile than the models themselves, it is important to state that the pensions models are integral to the publication and everything that it seeks to achieve.” - Head of Pensions and Investment Education, Columbia Threadneedle Investments [S6]