Will Pension Commission improve retirement prospects?

The government has revived the Pension Commission is it seeks to confront a retirement crisis that risks tomorrow's pensioners being poorer than today's. The Commission will look to build on the work of its 2006 predecessor which played a key role in the introduction of automatic enrolment into pensions schemes. The relaunched Commission will explore the obstacles stopping people from saving enough for retirement. In this month's Hot Topic we take a look at the Pension Commission.

Income set to fall

Since 2006, the Pension Commission automatic enrolment into pensions has increased from 55% in 2012 to 88% of eligible employees now.

However, government analysis shows that there is more to do, with the incomes of retirees set to fall over the next few decades if nothing changes. The analysis shows that retirees in 2050 are on course for £800 or 8% less private pension income than those retiring today.

In addition, nearly 15 million people are under saving for retirement with the self-employed, low earners and some ethnic minorities particularly at risk, according to the government.

Minimum contribution

While the introduction of automatic enrolment increased the numbers saving, saving levels have often remained low. Around 50% workers in the private sector only save around the minimum contribution level (8% or less of earnings).

The government says the relaunched Commission will explore the complex barriers stopping people from saving enough for retirement, with its final report due in 2027. It will examine the pension system as a whole and look at what is required to build a 'future-proof pensions system that is strong, fair and sustainable'.

Minister for Pensions, Torsten Bell, says: 'The original Pensions Commission helped get pension saving up and pensioner poverty down. But if we carry on as we are, tomorrow's retirees risk being poorer than today's.

'So we are reviving the Pensions Commission to finish the job and give today's workers secure retirements to look forward to.'

Route to higher living standards

The UK's business groups welcomed the relaunch of the Pension Commission.

Rain Newton-Smith, Chief Executive of the Confederation of British Industry (CBI), says: 'The only route to higher living standards both in work and in retirement is through higher growth, productivity and better savings.

'As we look to the next decade and beyond, finding a consensus across business, government and our society on how to support people to save by building on the Mansion House reforms can create a pathway to a better future.

'Taking the time to review the best pathway to achieve this, whilst pursuing broader measures to support growth, will be needed to make it affordable for employers and workers and crucial to the aim of rising living standards, now and in retirement.'

Landmark move

The Association of Independent Professionals and the Self-Employed (IPSE) described the relaunch as a 'landmark move' to address the growing retirement savings gap among the self-employed.

It welcomes the fact that the new Commission will explicitly examine why the self-employed remain particularly vulnerable when it comes to saving for later life – a longstanding concern for the sector.

The self-employed are still largely excluded from frameworks like automatic enrolment.

Fred Hicks, Senior Policy Adviser at IPSE, says: 'This is a landmark moment in the long-neglected question of how to boost self-employed pension pots and improve their outcomes in retirement.

'It's hugely encouraging that government is putting this issue under the spotlight with the new Pensions Commission, which has a clear intent to focus on those who have so far been left behind.

'It feels like long-overdue recognition that a bigger self-employed is not a short-term trend, but a permanent and important feature of our economy – and that we now need to design a pensions system that truly works for them.'

Rainy days

The new Pensions Commission should boost future generations' living standards in retirement and taking on the equally pressing 'rainy day' savings challenge, according to the Resolution Foundation think tank.

The Foundation says the current one-size-fits-all system of automatic enrolment creates risks and needs reform. Some low-earners may be saving more than they can afford, or need to, while others – particularly middle- and higher-earners – are still saving too little.

Decent pension pots are not the only saving challenge families face today either, with one-in-three working age adults living in families with savings of less than £1,000. Higher default contribution rates will make it harder for people to save into 'rainy day' accounts.

Greater flexibility will be needed therefore to reduce the tension between saving for retirement and saving for a rainy day, says the Foundation.