The Government has announced the revival of the Pensions Commission in an effort to address concerns that future pensioners may face significantly lower incomes than today’s retirees, as well as a State Pension review.
The renewed Commission will assess structural issues in the current system and recommend reforms to ensure more workers are able to achieve a secure retirement. The State Pension review “will consider whether the rules around pensionable age are appropriate, based on the latest life expectancy data and other evidence”, the Government said. The Government is required by the Pensions Act 2014 to conduct a review into the state pension age – which is currently 66 – every six years.
Automatic Enrolment, introduced following the original 2006 Pensions Commission, has helped increase participation in pension saving. As a result, 88 percent of eligible employees now contribute, up from 55 percent in 2012. Despite this, data released by the Government shows that many people remain underprepared for retirement. According to new analysis, private pension incomes in 2050 are projected to be £800, or 8 percent, lower than those of today’s pensioners.
Approximately 15 million people, or four in ten working-age adults, are currently undersaving for retirement. This includes large sections of the population who are saving nothing at all, with 45 percent of working-age adults not making any pension contributions. Low earners, the self-employed and some ethnic minority groups remain disproportionately affected.
Commission to explore adequacy and access
Among the self-employed, over 3 million individuals are not contributing to a pension. In the private sector, only one in four low earners are saving. Similarly, just one in four people from Pakistani or Bangladeshi backgrounds are contributing to a pension scheme. Gender disparity remains a significant issue, with the analysis revealing a 48 percent gender pensions gap in private pension wealth. A typical woman approaching retirement currently has a private pension income more than £5,000 lower than her male counterpart.
The Government will task the new Pensions Commission with examining the broader pension system and the barriers that discourage people from saving. It will produce a final report in 2027. The Commission’s remit will include reviewing adequacy of savings, system fairness and future sustainability.
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.”
David Saunders, senior partner at Sackers, told HR review that the analysis included in the Government’s announcement shows some startling results.
“Identifying and helping to tear down the barriers preventing people from saving in the first place is an equally urgent task. We welcome the revival of the Pensions Commission and call on it to be brave and bold in its recommendations,” he added.
Pension support and system redesign
Rain Newton-Smith, Chief Executive of the Confederation of British Industry, welcomed the announcement, stating, “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.”
In a statement made available to HR review Julian Mund, Chief Executive of Pensions UK, supported the relaunch. “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,” he said. “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.”
He also confirmed Pensions UK is conducting research into flexible models for Automatic Enrolment to support the Commission’s work. “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.”
