DWP's press release about the Pension Schemes Bill delivering a "retirement boost of £29k" is absurd for obvious and non-obvious reasons.
First, the obvious part.
- The projected £29k boost is an average, not a uniform uplift, and is based on a whole career. (So today's workers would on average benefit less, as would those who don't have full careers).
- The £29k is calculated using highly uncertain assumptions around several overlapping policies. DWP's impact assessment says "the actual benefits will differ for all savers and may be higher or lower."
- A little over half of the £29k comes from the value-for-money regime. DWP gave this policy a "red, high impact" rating for "analytical risk", noting that "small changes in returns would significantly impact monetization (due to compounding) and future returns are highly uncertain".
But a quirk of the calculation makes suggestions that £29k is a meaningful figure for most workers even less appropriate. The value-for-money regime is assumed to boost average returns by forcing the worst-performing schemes out of the market. That doesn't affect savers in other schemes. So more than half of the "£29k comes from a weighted average of "zero" (most people) and "lots" (some people).
And what does "£29k" mean when we're looking decades ahead? DWP's estimate is in today's earnings terms - so, on assumptions about earnings growth outsripping inflation, the £29k that people would benefit from would buy more than twice as much as £29k does today. On the other hand, this is a boost to the value of pension pots from which withdrawals are mostly taxable. So the boost to retirees' spending power would be <£29k (in today's earnings terms).
I can only presume that someone in DWP's press office keeps insisting that they need a number to sell the story, and "there are good reasons to think that this package of measures will improve outcomes but how much is highly uncertain" isn't a strong enough line.
For context, on DWP's assumptions, the £29k is a roughly equivalent effect to increasing default contribution rates from 8% to 9.5%, but without the pain of paying more. So it's well worth trying to do that - but preferably without pretending that gains of this magnitude are nailed on.