The Pensions and Lifetime Savings Association has called for action and warned that without reform of the pension system, over half of savers will fail to meet the retirement income targets set by the Pensions Commission in 2005.
In a report released today (October 12), the PLSA proposed five reforms that it said will help millions of people achieve a better income in retirement.
If acted on, a median earner would see their pension income increase from around £15,000 a year to around £19,000 – an increase of almost £4,000 or 25 per cent.
This would also mean the government would achieve the target income suggested by the Pensions Commission.
PLSA chair and director of workplace at Aviva, Emma Douglas said: “Now, in the middle of a cost-of-living crisis, is not the time for radical change but by providing a clear ‘roadmap’ for reforms, government will give employers and pension savers time to plan, which will help to ensure better retirements.”
The research found that the 50 per cent of people who will fail to meet the retirement income targets includes people on average earnings as well as under-pensioned groups.
This includes people, usually women, who take time out of work to care for others, and specific elements of the workforce such as the self-employed, gig-economy workers and people with part-time jobs.
The research also found that around a fifth of households are likely to achieve less income than needed to meet the minimum level of the Retirement Living Standards.
In today’s report, ‘Five Steps to Better Pensions: Time for a New Consensus’, the PLSA reviewed the current pensions framework and modelled the impact of a range of potential interventions.
The PLSA said: “If policymakers plan now and set out a roadmap for reforms, over the next 10 to 15 years a new framework could be implemented to substantially improve the prospects of the majority of savers.”
It’s five recommendations for reform were:
- National objectives: The creation of clear national objectives for the UK pension system – ‘adequate, affordable and fair’ – combined with regular formal monitoring of whether it is on track to achieve these goals.
- State pension: Reform of the state pension so everyone achieves the ‘Minimum Retirement Living Standard’, to prevent pensioner poverty.
- Auto-enrolment reform: Reform of AE so more people are included, such as younger people, multiple job holders and gig economy workers, and at a higher level so people on median earnings are likely to achieve the Pensions Commission’s Target Replacement Rates. These measures include saving from the first pound of earnings, and gradually increasing contributions from 8 per cent to 12 per cent from the mid-2020s to the early 2030s – with contributions split evenly between employers and employees.
- Under pensioned groups: Additional policy interventions to help under pensioned groups, including women, gig economy workers, self-employed people, and others.
- Industry initiatives to achieve better pensions: actions to help people engage with pensions, receive higher contributions, or get better pension outcomes.
Responding to the PLSA’s proposals, AJ Bell’s head of retirement policy, Tom Selby agreed that boosting savings rates among the self-employed and people with multiple jobs “needs to be a core policy objective for the current and future governments”.
“The first step of automatic enrolment was boosting the number of people saving something for retirement. On that measure alone the reforms have been hugely successful, with around 20 million people now saving in a pension scheme,” Selby said.
“Policymakers now face a generational challenge and one which will shape the financial futures of millions of people – how to increase the amount people save for the short, medium and long-term?"
“This would be difficult enough during ‘normal’ economic times but is made even harder during a period of huge economic uncertainty, with inflation running wild and millions of households braced for further pain as mortgage costs spiral.
“To give you an idea of the scale of the challenge, AJ Bell research suggests around a third of people have either opted out or are considering opting out of their pension scheme in response to rising inflation,” he added.