The UK pensions industry has urged the Pensions Commission to be “brave” in its final recommendations to address pensions adequacy, warning that “too much time” has already been spent diagnosing the same problems.
The Pensions Commission today published its interim report on the state of retirement saving in the UK, highlighting that many people are not saving enough for retirement, particularly low and middle earners, the self-employed and women.
It warned that, without action, the number of people undersaving for retirement could rise from 15 million to 19 million, leaving large groups across the UK facing a “severe cliff-edge when they retire”.
The commission’s final report, due in early 2027, is expected to outline measures to improve retirement outcomes while ensuring the system remains fair and sustainable across generations.
In the meantime, the commission said public policy has an important role to play in shaping the future of pensions while maintaining the broad political consensus that has existed since the Turner commission in the 2000s. It added that any reforms should be implemented gradually.
The government has already ruled out changes to automatic enrolment contribution rates during the current Parliament.
Jeannie Drake, pensions commissioner, said current challenges require a renewed national settlement on pensions.
She said achieving this would require clarity of purpose, while also providing an “opportunity to renew a social contract that commands confidence across the country”.
She added: “The recommendations we present in our final report will address the need to secure adequate income in later life and a pension system that is fit for decades to come.”
Setting a clear path
Iain McLellan, director at Isio, said the findings would not surprise those working in the pensions industry.
He said: “The next phase of the Commission’s work will be the hardest – what is clear is the need for greater levels of saving, but the key question is who pays for this – individuals, employers, or the state? In assessing the options, we hope the Commission supports Collective [Defined Contribution] DC arrangements which have the power to substantially improve outcomes and can potentially do a lot of the heavy lifting in addressing the adequacy challenge.”
Andy Briggs, CEO of Standard Life, has said that auto-enrolment contributions set at 8% are not enough to address the pensions adequacy crisis. And while change cannot happen overnight, the government should be “setting a clear path towards increasing contribution rates to 12% gradually over time”.
Helen Forrest Hall, chief strategy officer at the Pensions Management Institute, said incremental change would not be enough and, while the Pension Schemes Act is a strong start, she argued the industry needs “bold and innovative solutions” comparable in scale to auto-enrolment.
She said: “We call on the Pensions Commission to be brave in its recommendations and build cross-party consensus for an enduring reform roadmap.”
David Brooks, head of policy at Broadstone, said increasing minimum auto-enrolment contribution rates would “inevitably form part of the debate”, but warned it was “unlikely to be a panacea” given financial pressures facing households.
“Encouragingly, there is already a broad package of reforms that have just been passed into Law which aim to deliver better value for money for pension savers as well as improving awareness, engagement and outcomes,” he noted.
Adequacy challenge
Jamie Fiveash, CEO of Smart Pension, said improving long-term investment performance could also help address the adequacy challenge.
He said: “Even a 1% difference in investment performance over a working lifetime can add six figures to a pension pot at retirement. In an environment where contribution levels are difficult to increase, improving outcomes through better long-term performance becomes even more important.”
Fiveash said closer scrutiny of pension fund net returns by advisers and employers could help savers optimise retirement outcomes, adding that the Pension Schemes Act Value for Money (VfM) framework was designed to provide clearer comparisons across pension funds for savers, employers, advisers and trustees.
He stated: “Given today’s report, we have an opportunity to adopt its focus and purpose as early as possible. We would like to see a net returns measure applied across the entire defined contribution market, including the retail sector, by 2028, to create a true level playing field and allow all savers to make meaningful like-for-like comparisons based on value, not just cost.”
Standard Life’s Briggs also highlighted the fragmentation of the UK defined contribution market as a further issue requiring attention.
He said: “Consolidation improves member outcomes, and is not just a focus for system efficiency. It is about unlocking capability, and larger schemes can invest to support infrastructure projects across the UK, and provide capital to growing companies while still meeting the primary duty to customers. Smaller schemes cannot do this consistently.”
Mark Futcher, head of DC at Barnett Waddingham, said “too much time” had already been spent diagnosing the same issues, although he acknowledged the scale of the challenge facing policymakers.
He, nevertheless, urged the Pensions Commission not to “pull any punches” in its final recommendations.
“We can’t keep staring at the same problems year after year – it’s time for decisions that genuinely move the dial on retirement outcomes,” he said.
