The Government is reviving the Pensions Commission, amid fears that people are not saving enough for retirement.
The move to resurrect the commission, established under Tony Blair’s government in 2002, comes as analysis shows that retirees in 2050 are on course for £800, or 8%, less private pension income than those retiring today.
Meanwhile, four in 10, or nearly 15 million people, are undersaving for retirement.
Analysis from the Department for Work and Pensions showed over three million self-employed are not saving into a pension, while only a quarter of low earners in the private sector are saving into a pension.
It also highlighted a stark 48% gender pensions gap in private pension wealth between men and women. A typical woman currently approaching retirement can expect a private pension income worth over £5,000 less than that of a typical man.
The Government said the revived commission will seek to address these findings, as well as explore the barriers stopping people from saving enough for retirement.
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.”
The previous commission recommended automatically enrolling people in workplace pensions, which has led to 88% of eligible employees now saving, up from 55% in 2012, the DWP said.
Minister for Pensions Torsten Bell commented: “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.”
Industry welcomes announcement
The announcement was widely welcomed by the pensions industry, but there was widespread agreement that changes must be long-standing to avoid undermining confidence in pensions.
Kirsty Anderson, retirement specialist at Quilter, said: “The revival of the Pension Commission is a welcome move. A joined-up, long-term approach to retirement policy is essential if we are to address the growing challenges facing future retirees. With nearly half of working-age adults saving nothing for retirement, the Commission’s remit must be bold and forward-looking.”
Anderson said areas ripe for reform include increasing the level of contributions via auto-enrolment and the extension of auto-enrolment to younger workers.
“Lowering the age threshold would help embed positive savings habits early, giving more people a realistic chance of financial security in later life. However, reforms must be carefully calibrated to reflect the economic pressures facing young earners. Government support will be vital to ensure any changes are both effective and affordable.
“At the same time, any increase in contribution rates must be handled sensitively to avoid placing undue strain on businesses. A staggered or phased approach may be necessary to give employers time to adjust, especially smaller firms already grappling with rising employment costs and tight margins,” she explained.
Damon Hopkins, head of DC workplace savings at Broadstone, commented: “The data released by the Government 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 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.”
Mike Barrett, consulting director at the lang cat, said: “This is a positive step especially if the Commission can tackle some of the bigger issues surrounding pensions and improving provision so more people benefit from better retirements.”
He added: “Care now needs to be taken to deliver any change in a sensible and controlled way. Constant tinkering with the pension regime creates a huge overhead for providers and advisers. It also risks reinforcing the perception of a sector that is increasingly impenetrable, making it difficult for consumers to engage with and plan for their retirements.”
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