Hannah English, Senior DC Consultant, Hymans Robertson says: “We are pleased to see the IFS report, “Challenges for the UK pension system: the case for a pensions review” call for a review to tackle the challenge of future generations of pensioners having sufficient income in retirement. Whilst it is encouraging that there’s a clear timeframe to deliver policy recommendations by September 2025, it would be good to see early engagement with, and support from, the government to complete the review. This support from the government will be crucial for the effective implementation of any future policy change.
“We have always been supportive of policy interventions which have encouraged improved outcomes – including the introduction of AE and planned developments to include more individuals within this through the reduction in the starting age to age 18, as well as the removal of the offset to qualifying earnings (i.e. £6,240). However, these moves alone are not enough. Other measures will be needed to achieve an adequate income in retirement for pensioners.
“The report highlights the lack of saving amongst the self-employed which is good to see. However, the focus should also be on those away from work, e.g. those performing carer responsibilities, and we strongly suggest this is included within the review. Auto enrolment alone will not fix the pensions equality gap, nor pension poverty, if there is not an employer to enrol these individuals into a pension scheme.
“The report highlights low contribution levels of saving for those in the private sector across individuals of all income levels. Yet, increasing AE contributions levels above 8%, to levels of at least 12% or more, will have a more meaning impact on members’ accumulated funds.
“On the issue of the risk of pensioners managing their pots through retirement, a review to determine the best way to increase engagement and understanding of the risks couldn’t be more timely or relevant. A key driver to making the right choices will be through receiving adequate guidance. It is clear to see that Pension Wise is already having a positive impact on the members that do make use of the appointments. Future policy recommendations must be introduced to explore a trialling of an automatic booking of appointments with Pensions Wise for all individuals approaching retirement.
“Finally we note that the government alone will not be able to force all improvements in member outcomes through policy change. Engagement with providers to drive product innovation, employers to review scheme delivery, and regulators to provide guidance will also be needed to improve the outcomes of future pensioners.”
James Jones-Tinsley, Self-Invested Pensions Technical Specialist at Barnett Waddingham comments: "It takes a long time for pension saving to show through in pensioners' incomes; by its nature, it only becomes evident after a full working life - often several decades. Therefore, if pensioners have been doing well since 2009, this is likely a result of their historic defined benefit pensions, or 'final salary schemes', which grant a significant and sustainable income through retirement. It cannot be directly related to the successes or failures of auto-enrolment, which only came to pass in 2010.
“Looking to the future, the levels of defined contribution mandatory contributions remain far too low to offer members a 'decent' pension in retirement. And the self-employed are already two steps behind employees, in that they have no employer contributions to help increase the size of their pension pot, plus there is no auto-enrolment equivalent for them. Many people aren’t in any form of workplace pension scheme; they are relying mainly or solely on the state pension.
"The IFS is correct that workers in the future do not have a comfortable retirement ahead. Many people will need work longer and retire on less. We are sleepwalking into a retirement crisis; significant policy change is needed, and quickly.”
Sangita Chawla, Managing Director at Standard Life, part of Phoenix Group, said: “The current pension system is under growing strain with a number of long-term pressures starting to build. As things currently stand many younger and midlife workers are at risk of missing even the PLSA's minimum standard of living in retirement with the self employed and those who are likely to be renting in retirement especially vulnerable. This is despite the great strides forward made by auto-enrolment and plans to extend it to cover workers from age 18.
“With the onus increasingly on individuals to make complex financial decisions, particularly at the point of retirement, advice and guidance aren’t as accessible as they need to be and greater support is required to avoid people making costly mistakes.
“There are also difficult discussions to be had regarding the scope of the state pension, which is the bedrock of most people’s retirement, at time when the public purse is under huge scrutiny.
“The IFS team are well placed to look at these challenges in the round and we will follow this multi-year piece of work with interest.”
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