Aegon is urging the Government to use the second phase of its Pension Review to define what pension adequacy means and take steps to reduce pension inequalities in the UK.
The firm said the Government must build a consensus on what constitutes an adequate retirement income and carry out a detailed analysis on how much people need to save to achieve this.
It has also called upon the Government to implement the 2017 auto-enrolment review recommendations and expand the upper age to 75.
Additionally, Aegon is arguing for the introduction of a pension solution for the self-employed using the principles of auto-enrolment.
Kate Smith, head of pensions at Aegon, said: “We hope the Chancellor will unveil details of the highly anticipated review of pension adequacy as part of her Mansion House speech next Tuesday.
“This is a pivotal opportunity to reach a consensus on what constitutes an adequate retirement income. The pension review is an opportunity to really move the dial on pensions adequacy for this and future generations of pension savers before it’s too late.”
Smith said adequacy isn’t the same number for everyone; it should be linked to replacing a proportion of working age earnings so will vary between groups of individuals, based on their earnings and personal circumstances.
For lower earners, the State Pension may provide an adequate retirement income, but for medium and higher earners, there’s a greater need to supplement this with private and workplace savings, Smith explained.
“We urge the pension adequacy review to carry out a detailed analysis of how much people need to save to achieve an adequate retirement income. This could also inform any future increases to auto-enrolment contributions.
“Once individuals understand what might be an adequate retirement income for them, the industry can offer guidance, possibly through targeted support, around whether they need to contribute more to achieve this,” she said.
Smith said this was needed “more than ever”, with the Pensions Minister having ruled out any increase in minimum auto-enrolment contribution rates during this parliament.
Smith said: “Currently too many people are excluded from auto-enrolment as they are too young, too old, don’t earn enough or are self-employed. This means 45% of working age people in the UK are not saving in a pension, and many of the remaining 55% are under-saving, so the review must tackle the growing risk of inadequate retirement incomes and pension inequality.
“Implementing the 2017 reforms to auto-enrolment would go some way to reducing pension inequalities, including closing the pension gender gap, by helping more people to save more, earlier, and for longer. As people have longer working lives, we believe the upper age should rise to 75, rather than stopping at State Pension age.”
Smith added that a pension solution for the self-employed is also “desperately needed” to nudge them into saving for later life, warning that without this, they risk falling far behind their employed counterparts in retirement.
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