- The government has revived the Pension Commission to examine why tomorrow’s pensioners are on track to be poorer than today’s and to recommend changes (source: Government revives landmark Pensions Commission to confront retirement crisis that risks tomorrow’s pensioners being poorer than today’s | GOV.UK)
- The Commission will produce its final report in 2027, after exploring complex barriers stopping people from saving enough
- It will examine the entire pension system and recommend changes to build a future-proof pensions system that is ‘strong, fair and sustainable’
- New government analysis shows retirees in 2050 are on course for 8% less private pension income than those retiring today, while over three million self-employed are not saving into pensions, and only 1-in-4 low earners in the private sector are saving into a pension
- There is a 48% gender pensions gap in private pension wealth between men and women, with a typical woman expecting a private pension income worth over £5,000 less than that of a typical man
- The Pensions Commission will be made up of Baroness Jeannie Drake, Sir Ian Cheshire, and Professor Nick Pearce
- The government has also launched the State Pension Age Review to be led by Dr Suzy Morrissey
Rachel Vahey, head of public policy at AJ Bell, comments:
“After 20 years, the government has breathed new life into the Pensions Commission, reviving it to solve the pension under-saving crisis of those due to retire in the mid-century.
“After the success of the Turner Pension Commission in ushering in the automatic enrolment reforms which changed pension saving in the UK forever when they were introduced in 2012, the government has gone back to the concept of a Pension Commission, hopeful it will bring about the next pension saving revolution.
“The government’s own analysis points to a dire need for intervention. Retirees in 2050 are on course for 8% less private pension income than those retiring today. While automatic enrolment has created 11 million new pension savers, many are saving the bare minimum. The demise of private sector defined benefit pensions and a levelling down of contribution rates by some private pension schemes have meant that, although there are more pension savers in the UK, they are not all saving enough.
“The solution could be higher contribution rates. But new plans for demanding employers stick their hands in their pockets once more, so soon after the national insurance hike, will be deeply unpopular, even if Labour has ruled out increasing pension contributions for employers in this Parliament. Meanwhile, many low earners would also struggle to pay higher contributions out of a low disposable income hit by inflation. It’s likely the revived Pension Commission will have to think smarter, and that a more nuanced approach is needed. That could include measures like higher contribution rates depending on earnings, moving away from the blanket minimum that applies to all eligible workers today.
“The self-employed are also a key focus, with over three million currently not saving into a pension. Ignored by automatic enrolment, there has been much talk over the past 13 years to bring them into the fold of regular saving, but so far no idea has proved to be the winner.
“But the Commission could turn its gaze much wider than just contribution rates. It promises to look at the balance between all types of pensions, and that could mean a review of the state pension as well, at the same time as the government launches its formal review of the state pension age.
“The state pension age will gradually increase to age 67 between 2026 and 2028. It’s also due to rise to 68 in the mid-2040s. It’s entirely possible – if not likely – this latest review will advocate bringing forward that increase to the late 2030s to save future governments’ money.
“Pensions minister Torsten Bell recently ruled out scrapping the triple-lock guarantee, but as the state pension grows ever closer to the frozen personal allowance threshold it could be that the government is finally forced to address the question of how much the state pension should really offer, at what age, and how it can increase payments sustainably each year.”
The Turner Review of Pensions
The Pension Commission was established in the early 2000s and was tasked with reviewing the regime for UK private pensions and long-term savings. Over the next few years it published three reports, its final one being in 2005.
The review argued there were four polices that can address pension finance:
- Accept pensioner poverty
- Increase public spending
- Lengthen work life
- Increase saving
Its lasting legacy is the introduction of automatic enrolment into pensions, where most workers over the age of 22 are automatically enrolled into a pension scheme when they start work with a new employer. They are given the option to opt out if they want, but most remain opted in.
Since the introduction of automatic enrolment in 2012, approximately 11 million people have been newly enrolled into workplace pension schemes. This has resulted in a significant increase in the number of people saving for retirement, with a total of around 20 million individuals now contributing to workplace pensions.