The Pensions and Lifetime Savings Association (PLSA) has called on the UK government to make reforms to the UK pensions system – including the automatic enrolment platform and the state pension – to help millions of people achieve a better income in retirement.

In the 10 years since auto-enrolment was first introduced the unprecedented success of the policy has become clear. Saver numbers are up significantly to 19.4 million, opt outs are lower than expected and evidence suggests people highly value pension savings and will continue to save in large numbers despite significant economic shocks, including the COVID-19 pandemic, according to the association.

However, following research based on modelling by the Pensions Policy Institute (PPI), the PLSA finds that without reform, more than 50% of savers will fail to meet the retirement income targets set by the 2005 Pensions Commission.

This is true for people on average earnings, as well as for under-pensioned groups, such as people – often 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 independently assessed, Retirement Living Standards.

In ‘Five Steps to Better Pensions: Time for a New Consensus,’ the PLSA has reviewed and assessed the current pensions framework and modelled the impact of a range of potential policy interventions.

It found five key elements of reform are needed to future proof the pensions system. 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 said.

The PLSA’s five reform recommendations are:

  1. 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.
  2. State pension: Reform of the state pension so everyone achieves the Minimum Retirement Living Standard, to prevent pensioner poverty.
  3. Auto-enrolment: Reform of the platform 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% to 12% from the mid-2020s to the early 2030s – with contributions split evenly between employers and employees.
  4. Under pensioned groups: Additional policy interventions to help under pensioned groups, including women, gig economy workers, self-employed people, and others.
  5. Industry initiatives to achieve better pensions: Actions to help people engage with pensions, receive higher contributions, or get better pension outcomes.

PLSA calculations based on PPI modelling show that after each of the recommended reforms are implemented, 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%. This means they will achieve the target income suggested by the Pensions Commission.

Emma Douglas, PLSA chair and director of workplace at Aviva, said: “The PLSA’s recommendations – Five Steps to Better Pensions – will help form a new national consensus on how best to build upon a decade of automatic enrolment success so everyone can achieve the right income in retirement.

“The combined successful implementation of these recommendations could make a huge difference to the retirement income of today’s savers. An annual increase of almost £4,000, or 25% for median earners, is particularly significant.”

She added: “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.”

Nigel Peaple, director policy and advocacy at the PLSA, commented: “Given the current cost of living crisis, we are not proposing any increases in pension contributions during the next three years and, after that point, only very gradual increases over the following decade until a point in the early 2030s when most people will contribute 12% – split evenly between employers and employees.”

The study also shows that the core proposals work for higher earners, although in order to achieve the Pension Commission targets, they would need to make some additional voluntary contributions. People at all income levels would benefit from a higher state pension (about £1,000 per year more than now) but it would be of greatest proportionate benefit to those on lower incomes.

The diagram below shows how the retirement incomes of people at different earnings levels will change as a result of the package of reforms being introduced. The figures show the amount in terms of annual income and against the PLSA’s Retirement Living Standards.

PLSA reform

Summary of projected retirement income after the PLSA’s proposed framework changes against the current situation (including the removal of band earnings, increases to the State Pension and increasing contributions to 12%)

There is already broad agreement that evolution of auto-enrolment is needed; the Work and Pensions Committee made some similar recommendations to government in late September.

The PLSA’s five steps to reform and the accompanying research paper, was launched today (12 October 2022) at the PLSA’s annual conference in Liverpool, with the publishing of the report marking the start of a consultation period. The PLSA is seeking views on its findings and recommendations from anyone with an interest in improving retirement outcomes in the UK.

All stakeholders are invited to send their views on the consultation questions by 31 March 2023 by email

Phil Brown, director of policy at B&CE, provider of The People’s Pension, welcomed the PLSA’s latest research, adding: “The only way to bring about significant change in the sector is to secure a consensus from parliament, employers and unions. While nobody is asking the government to intervene during a cost-of-living crisis, now is the right time to start thinking about how to successfully tackle the issues preventing pensions from working for more people.”

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