Marvin OnumonuThe Government has brought back the Pensions Commission to look at why people retiring in the future are likely to have less money than those retiring today.
Back in 2006, the commission led to automatic enrolment, which meant 88% of eligible employees started saving, up from 55% in 2012.
However, analysis showed that people retiring in 2050 are on track for £800 or 8% less private pension income than those retiring now.
Four in 10, or nearly 15 million people, are not saving enough for retirement.
45% of working age adults saved nothing at all into a pension, with lower earners, the self-employed and some ethnic minorities most at risk.
More than three million self-employed people did not save into a pension and only one in four low earners in the private sector saved into a pension.
The data also found a 48% gender gap in private pension wealth between women and men.
A typical woman close to retirement can expect a private pension income over £5,000 less than a typical man.
Half of private sector workers are only saving the minimum contribution level of 8% or less of their earnings.
The revived commission will look at barriers to saving and make recommendations, with a final report due in 2027.
The commission will examine the pension system as a whole and recommend how to make it strong, fair and sustainable.
Work and Pensions Secretary Liz Kendall said: “People deserve to know that they will have a decent income in retirement – with all the security, dignity and freedom that brings.
“But the truth is, that is not the reality facing many people, especially if you’re low paid, or self-employed.
“The Pensions Commission laid the groundwork, and now, two decades later, we are reviving it to tackle the barriers that stop too many saving in the first place.”
Chancellor Rachel Reeves said: “We’re making pensions work for Britain. The Pension Schemes Bill and the creation of pension megafunds mean an average earner could get a £29,000 boost to their pension pots.
“Now we are going further to ensure that people can look forward to a comfortable retirement.”
Pensions Minister Torsten Bell said: “The original Pensions Commission helped get pension saving up and pensioner poverty down.
“But if we carry on as we are, tomorrow’s retirees risk being poorer than today’s.
“So we are reviving the Pensions Commission to finish the job and give today’s workers secure retirements to look forward to.”
The Pensions Commission will include baroness Jeannie Drake, Sir Ian Cheshire and professor Nick Pearce.
They will work with groups like the Confederation of British Industry (CBI) and the Trades Union Congress (TUC).
The commission will make proposals for change beyond the current parliament, building on the investment review and pension schemes bill.
Alongside this, the Government also started the state pension age review, with two independent reports. Dr Suzy Morrissey will look at factors affecting the state pension age.
The Government actuary’s department will report on the proportion of adult life spent in retirement.
REACTION:
Rain Newton-Smith, CEO of the CBI:
“The only route to higher living standards both in work and in retirement is through higher growth, productivity and better savings.
“As we look to the next decade and beyond, finding a consensus across business, government and our society on how to support people to save by building on the Mansion House reforms can create a pathway to a better future.
“Taking the time to review the best pathway to achieve this, while pursuing broader measures to support growth, will be needed to make it affordable for employers and workers and crucial to the aim of rising living standards, now and in retirement.”
Paul Nowak, general secretary of the TUC:
“Everyone deserves dignity and security in retirement, but right now many workers – especially those in the private sector – will find themselves without enough to get by on.
“Far too many people won’t have enough pension for a decent retirement, and too many – especially women, BME and disabled workers and the self employed – are shut out of the workplace pension system all together.
“That’s why reviving the Pensions Commission – bringing together unions, employers and independent experts – is a vital step forward.
“Twenty years ago the Pension Commission played a key role in bringing millions more people into workplace pensions and reducing the risks of pensioner poverty.
“We now have a chance to build on that work by reaching a long-term consensus on extending auto-enrolment to those workers still missing out, and making sure that this system delivers the decent retirement incomes all workers need.”
Rocio Concha, director of policy and advocacy at Which?:
“Which? research has found that many consumers are concerned that they won’t have the money they need for a comfortable retirement, so it is encouraging to see the government take steps to reverse this trend.
“For some consumers, the idea of contributing more money into their pension pot is both daunting and unmanageable, so it is crucial that this review looks in depth at the challenges savers face, and Which? looks forward to working with the government towards long-term reform of the industry.”
Damon Hopkins, head of DC workplace savings at Broadstone:
“The data released by the Government today demonstrates both the widespread level of inadequate saving and serious inequality within the system.
“It is right that the Government is taking a long-term lens to its reforms via the Commission. While automatic enrolment (a result of the same Commission’s review in 2006) was a significant step in the right direction, almost half of working-age adults are still not saving into a private pension at all which means participation and levels of savings are key issues for the commission to address.
“In doing so, any changes must stand the test of time as constant tweaking undermines confidence and doesn’t tally with the long-term nature of pension saving that employers and employees are being asked to make.
“The launch of the State Pension Age Review is a necessary step and we would not be surprised to see an acceleration applied to the increase of the State Pension Age.
“The combination of an ageing population and the huge fiscal cost of the State Pension would suggest that a change is inevitable.
“A lower or later State Pension would, of course, double down the need for reform in the private savings landscape.”
Pete Maddern, managing director for retirement at Canada Life:
“As one of the UK’s leading retirement providers, Canada Life welcomes the news that the Government is launching a new Pensions Commission and wholeheartedly supports its aim to tackle the retirement crisis.
“There are many complex behavioural, social, and financial barriers that prevent people from adequately preparing for later life, and this needs to be understood and addressed before it’s too late.
“The reality is that people are living longer – and while this is something to be celebrated, it also means retirement income needs to stretch further than ever before.
“In today’s evolving retirement landscape, it’s also more important than ever for individuals to take a holistic view of their future finances.
“Security in later life doesn’t rest on one income stream alone. The State Pension, private pensions, savings, property, and guaranteed income products like annuities all have a role to play. Supporting people in understanding how to bring these elements together effectively is a crucial step toward delivering long-term financial resilience.”
Jamie Jenkins, director of policy at Royal London:
“The Pension Schemes Bill largely sets out the strategic direction for retirement saving over the next five years, and the formation of a new Pensions Commission will allow us to look beyond 2030 and consider how we improve retirement saving further in the decades ahead, considering the balance between State provision and private saving, and the role that savers themselves play in planning for their retirement.
“While now might not be the right time to raise contribution levels, given other financial pressures, we can’t ignore the more daunting prospect of an increasingly large and widely undersaved population of people in retirement. So now is the time to make a plan to remedy this in future.
“The government’s analysis also reveals the stark 48% gender pensions gap in private pension wealth for women and echoes our own insight.
“Royal London’s Financial Resilience Report found that men have an average of £92,000 in their pension pots, while women have only £39,000, and we know that more than half (54%) of women say they do not feel confident when saving for retirement, compared to 41% of men.
“We need certainty on the long-term direction of travel for private and State pensions and to ensure the system works well for everyone, so the Pensions Commission’s promise to look at the complex reasons underpinning why people are not saving enough and make recommendations to address this are very welcome.”
Caroline Abrahams, charity director at Age UK:
“We warmly welcome the Pensions Review, which has the potential to lay the foundations for a system of retirement saving that’s fit for the future. If we’re to avoid future generations of pensioners experiencing financial hardship, we need reforms that enable more people to build a decent standard of living, and we need them sooner rather than later to maximise the numbers who can be helped.
“Income for pensioners in the UK is based around both State and private pensions working together to help people enjoy a decent lifestyle once retired. The current system of saving has some significant gaps which have left many current pensioners struggling to make ends meet.
“Hopefully this can be avoided in future and particularly disadvantaged groups, including low-paid women and self-employed people on low incomes, can be helped to put money aside when appropriate for them to do so.
“There’s no getting away from the fact that the State Pension provides the bulk of retirement income for most pensioners, with 1.1million (13%) receiving all their income from the State.
“It’s therefore hugely important to consider the future of the State Pension alongside the role of private savings, as only once this is clear will it be possible to say with any accuracy how much people need to put aside to attain a decent standard of living once they retire. We look forward to working with the Government and the reviewers in the months to come.”
Julian Mund, chief executive of Pensions UK:
“Pensions UK supports the ambition this Government is showing by setting up a second stage of the landmark Pensions Commission, 20 years on.
“There is a significant job to finish: Pensions UK research shows one in five working households are on course to fall short of the income needed to meet the Minimum Retirement Living Standard.
“Higher pension contributions must become the norm, with more people brought into saving, and a State Pension that always protects against poverty.
“We are currently undertaking research to explore how building more flexibility into the automatic enrolment system might deliver better outcomes overall, as an input to this work.
“Pensions UK has a clear purpose: to help everyone achieve a better income in retirement. We are optimistic the Commission will make real strides towards delivering a pension system that is adequate, affordable and fair, and stand ready to lend our expertise to the review panel as they tackle these vital issues.”
