The government has launched a new Pensions Commission to examine why tomorrow’s pensioners are expected to be poorer than today’s and make recommendations for change.
New analysis has shown that retirees’ incomes are set to fall over the coming decades if nothing changes. People retiring in 2050 are on course for 8% less private pension income than those retiring today.
Almost half of working-age adults are still saving nothing, with low earners, ethnic minorities and the self-employed least likely to be pension saving.
Pensions Commission
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The Pensions Commission will look at the reasons why people are not currently saving enough for retirement and make recommendations to address this.
The analysis also shows that almost 15 million people are not saving enough for retirement.
There has also been a decline in average contribution levels since the introduction of auto-enrolment in 2012, with around 30% of workers in the private sector saving only the minimum contribution level.
The analysis also reveals a 48% gender pensions gap in private pension wealth for women. Men currently approaching retirement may expect a private pension income of £11,000 a year, while women can expect just £5,700 a year, before their state pension.
Only one in four of Pakistani and Bangladeshi working-age adults are saving into a pension, compared to 56% of white workers.
Liz Kendall, work and pensions secretary, 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, a woman, 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.”
While nearly half of self-employed people were contributing towards a pension in the late 1990s, less than 20% are doing so today.
The review will explore the complex barriers stopping people from saving enough for retirement, looking in particular at issues facing women, low-paid earners and young people, with its final report due in 2027.
The panel has been tasked to build on the progress of the Pensions Commission of 2002-06, chaired by Adair Turner, which led to more than 10 million more people paying into workplace pensions.
The government has committed not to raise employers’ pension contributions during this parliament.
The Pensions Commission will be made up of Baroness Jeannie Drake, who sat on the original commission, Sir Ian Cheshire, chair of the Institute for Government, and Professor Nick Pearce, director of the Institute for Policy Research, who will be responsible for steering its work.
The commission will make proposals for change beyond the current parliament to deliver a pensions framework that is strong, fair and sustainable. The government has also commissioned two independent reports to help it decide the state pension age for future decades.
Neil Carberry, REC Chief Executive, said: “There is no doubt that sustainable pension saving matters, and one of the great successes of the last 20 years is the consensus-based introduction of automatic enrolment and employer contributions from 2012. But that change wasn’t free – businesses have stepped up to pay more in partnership with their employees. Any review to this settlement needs to be done with business – not to them. The jury is out on whether we can repeat the good work of the Turner Commission, which was based on deep partnership with business that made it successful.
“We are particularly concerned at the wider impact of this announcement. Employment costs in the UK have been rising, and we must be a competitive and attractive place to create jobs. With technology reshaping our labour market, a huge raid on employers in the form of national insurance rises this April, pay driven up by minimum wage rises of a quarter in three years, and the threat of a hugely bureaucratic approach to employment rights in the form of the government’s current Bill, firms are already deeply concerned.”
Morgan Vine, director of policy and influencing at Independent Age said: “This is an important opportunity to make sure that future pensioners have an adequate income so they can live a dignified later life. The last Pensions Commission was transformative for many and our research is clear that, without intervention, poverty in older age will rise, so action to prevent this is vital.
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“We are disappointed that the review will not include a focus on the incomes of people currently over state pension age. Every day, our advisers hear about the difficult decisions older people on a low income are making to survive, including skipping meals and reducing the number of showers they take to save money. We urge the UK government not to forget the almost two million older people currently living in poverty and the further one million hovering just above the line and put in place tangible changes to support them too.”
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