Pension provision in the UK risks leaving the majority of people with inadequate living standards in retirement, MPs have said, and are urging the government to set in motion improvements for large parts of society. The pensions industry fully supports their recommendations. 

 

The final report of a three-part inquiry by the Work and Pensions Committee on ‘Protecting Pension Savers’ has found more than 60% of people are at risk of missing out on an adequate standard of living in retirement, despite the introduction of auto-enrolment 10 years ago. It warns that pension contributions need to increase, and a system needs to be created for the self-employed and protection of gig economy workers. 

 

 

Sir Stephen Timms, who chairs the committee, said auto-enrolment has increased participation but that people will be feeling a false sense of security, since contributing the minimum amount will not be enough to enjoy retirement.  

 

The Pensions Policy Institute found that just 39% of households and 37% of individuals are on track for an adequate pension according to the definition used by the Pensions Commission that first proposed auto-enrolment. The Institute for Fiscal Studies also said auto-enrolment minimums are not delivering the amount of saving hoped for by the Pensions Commission. 

 

“The blunt truth is that many employees need to save more but do not realise it. The government must urgently consider how to boost saving, including examining the case for increasing minimum contributions, before it is too late,” Sir Stephen said.  

 

He said it must also turn its attention to the self-employed and some gig economy workers. “These people are at real risk of being left behind in retirement unless the government steps in to ensure they have access to auto-enrolment or similar schemes,” he warned.  

 

While the cost-of-living crisis means reforms cannot be brought in now, “this does not mean that the new team of DWP ministers can sit on their hands”, he added. The government should start building consensus on the need for change and draw up a plan for higher minimum contributions in the future, the committee said, and by March set out its plans to build a new consensus on adequate retirement income and what the pensions system should be designed to achieve. 

 

 

The committee said there were “good arguments for starting with an increase in employer contributions to 5%, level with employees”, up from the current 3%, and welcomed the former pensions minister’s aspiration to bring contributions to 12%. 

 

With pension adequacy particularly low for women, the DWP should work across government and with stakeholders to agree a definition of the gender pension gap and a target to reduce it, the inquiry concluded. The new office could report back to parliament on reducing the gender gap. 

 

MPs urge government to implement the recommendations of the 2017 auto-enrolment review – lowering the minimum age and applying saving from the first pound earned – no later than the beginning of the next session of parliament. 

 

With just 16% of the self-employed saving for a pension, MPs also want government to trial new ways of defaulting the 5m self-employed into pension saving and consult on increasing national insurance contributions for them, giving them the option to have these additional contributions paid into a pension if they also contribute.  

 

Many gig economy workers are also still missing out on pension contributions despite a court case requiring employers to treat them as workers. MPs want to see an employment bill “as soon as possible” to improve the legal protections for this type of worker. 

 

 

With the government currently busy extricating itself from a gilts crisis triggered by recent policy announcements, it is not clear how quickly these issues would be addressed. However, economists and the pensions industry are clear that something has to be done. 

 

“The job is far from done,” said Heidi Karjalainen, a research economist at the IFS, given the inadequate savings rates and low coverage of the self-employed in particular. “Policies that build on the success of automatic enrolment are needed and this should be a priority." 

 

The Pensions and Lifetime Savings Association has said it fully supports the committee’s recommendations and has urged ministers to adopt them. 

 

“Without government action too many people will fail to achieve an acceptable standard of living in retirement. This is something that 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,” said Nigel Peaple, director of policy and advocacy. 

 

“The PLSA strongly believes that reform is needed, but it should be only gradually introduced from the mid-2020s and over the decade that follows” given the cost-of-living crisis, he added. 

 

The Association of British Insurers has welcomed the report by the committee. Rob Yuille, who heads up long-term savings policy, said the government needs to ensure that automatic enrolment continues to work for savers, which would include increasing minimum contributions. 

 

“However, a plan must be set out to achieve this gradually over the next decade. Additionally, we agree that solutions must be brought forward to bring lower earners and the self-employed into automatic savings,” he added. 

 

Leah Evans, chair of the Pension Board at the Institute and Faculty of Actuaries, also supported the recommendations and agreed that the current minimum contributions are unlikely to be sufficient for many people. 

 

Evans accepted that now was not the right time to increase contributions but said it is important to face up to the challenges that undersaving might pose for many when they come to retirement. 

 

What are your views on improving adequacy for pension savers?