MPs urge government to boost pension saving 'before it is too late'

The Work and Pensions Committee (WPC) has urged the government to consider boosting future saving rates “before it is too late” and to introduce legislation for the 2017 Auto Enrolment Review reforms “no later than the beginning of the next session of parliament”.

Although the WPC acknowledged that the middle of a cost-of-living crisis is not the time to task people to pay more into their pensions, it argued that the government should start building a consensus on the need for change now, to avoid a future "catastrophe".

Indeed, the WPC’s report, which was published following the third and final part of its inquiry into pension saving, warned that despite the introduction of auto enrolment (AE) ten years ago, more than 60 per cent of people are at risk of missing out on an adequate standard of living in retirement.

It also suggested that people over 40 who have had limited time to build up their pension pot through AE are particularly at risk if they do not have access to a defined benefit pension, in line with previous warnings from the industry.

In light of this, it recommended that the government set out its plans to build a new consensus on adequate retirement income and what the pensions system should be designed to achieve by March next year.

The committee also recommended that the government consider whether an increase in minimum contributions is possible in the foreseeable future and, if not, explain how it intends to address the challenge of many people being on course for retirement incomes they will not think adequate.

Improvements in partipation rates could also be made, according to WPC, which urged
the government to introduce the necessary legislation to implement the 2017 AE recommendations "no later than the beginning of the next session of Parliament", to improve retirement outcomes for part-time and gig economy workers.

This was not the only recommendation designed to help gig economy workers, as the WPC recommended that the Employment Bill be brought forward “as soon as possible” to improve gig economy legal protections and access to pension schemes.

Pension saving amongst the self-employed was also highlighted by the committee as a further area of concern, with the proportion of self-employed saving in a pension falling from 48 per cent in the late 1990s, to some 16 per cent now.

To address this fall in saving, WPC recommended that HM Treasury and the Department for Work and Pensions (DWP) set a date to trial ways to default self-employed people into pension saving.

It also called for a consultation on the proposal to increase national insurance paid by self-employed people, giving them the option to have these addition contributions paid into a pension, if they also contribute.

The WPC also urged the government to work with stakeholders to agree a definition of the gender pension gap and a target to reduce it, after the inquiry heard that there is currently no common consensus.

In addition to this, the committee asked DWP to outline a timetable to review the level at which the earnings trigger is set, with evidence during the inquiry suggesting that the current trigger is excluding too many people, particularly women.

More broadly, the report suggested that a better evidence base is needed to understand the issues surrounding pension saving gaps, with the WPC suggesting that a new office should be set up tasked with building and maintaining an evidence base.

This office could explain the trade-offs involved in different policies, reporting regularly to Parliament on progress in meeting objectives relating to retirement adequacy and the gender pension gap.

WPC chair, Stephen Timms commented: “While automatic enrolment has been successful in boosting participation in workplace pension saving, many people will be feeling a false sense of security holding on to the idea that putting away the minimum amount will be enough to enjoy a fulfilling retirement.

“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.

“Attention also needs to be given to the forgotten groups excluded from auto-enrolment,
such as 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.

“With many struggling through a cost-of-living crisis now is not the time to ask people to find extra money for their pensions, but this does not mean that the new team of DWP ministers can sit on their hands and ignore the dark clouds gathering on the horizon for a future generation of pensioners.

“Without action to prepare the ground now, many people will feel the reality of this coming catastrophe in their later years.”

The report has already been welcomed by some industry organisations, with the Pensions and Lifetime Savings Association (PLSA) fully supporting the WPC recommendations.

“We agree with the committee’s stark assessment that without government action too many people will fail to achieve an acceptable standard of living in retirement,” PLSA director of policy and advocacy, Nigel Peaple, said.

Adding to this, B&CE, provider of The People’s Pension, director of policy, Phil Brown, said: “While automatic enrolment has achieved so much in its first 10 years, research we submitted to the committee’s inquiry shows that the majority of people are not saving enough for their retirement.

“While navigating a way out of the cost-of-living crisis has to be the priority for government, the potential for a pensions crisis affecting millions of people cannot be ignored.”

Hymans Robertson partner, Chris Noon, also highlighted the recommendations around the gender pensions gap as particularly welcome, stating: “Now that the Select Committee has been so compelling in its recommendation, we keenly wait with anticipation for the government to act and make the changes we believe are urgently needed to help so many people, predominantly women.”

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