Government revives Pensions Commission to confront 'retirement crisis'

The government has announced the relaunch of the landmark Pensions Commission to examine why tomorrow’s pensioners are on track to be poorer than today’s and make recommendations for change.

The Commission was first introduced in 2006 and built a consensus for the roll-out of Automatic Enrolment into pension saving that means 88% of eligible employees are now saving, up from 55% in 2012.

However, new government analysis shows that the incomes of retirees set to fall over the next few decades. Retirees in 2050 are on course for £800 (8%) less private pension income than those retiring today and 4 in 10, nearly 15 million people, are undersaving for retirement.

This partly reflects too many working age adults (45%) saving nothing at all into a pension, with lower earners, the self-employed and some ethnic minorities particularly at risk.

Over 3 million self-employed are not saving into a pension, just a quarter of low earners in the private sector are saving into a pension, and just 1-in-4 of those from a Pakistani or Bangladeshi background are saving.

New analysis also reveals a stark a 48% gender pensions gap in private pension wealth between women and men. A typical woman currently approaching retirement can expect a private pension income worth over £5,000 less than that of a typical man (just over £100 per week for a woman compared to just over £200 a week for a man).

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

The relaunched Commission will explore the barriers stopping people from saving enough for retirement, with its final report due in 2027. 

Work and Pensions Secretary, Liz Kendall, said: "People deserve to know that they will have a decent income in retirement – with all the security, dignity and freedom that brings. But the truth is, that is not the reality facing many people, especially if you’re low paid, or self-employed.

"The Pensions Commission laid the groundwork, and now, two decades later, we are reviving it to tackle the barriers that stop too many saving in the first place."

Pensions minister, Torsten Bell, added: "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."

Pensions industry reacts

Kirsty Anderson, retirement specialist at Quilter, said: “The revival of the Pension Commission is a welcome move. A joined-up, long-term approach to retirement policy is essential if we are to address the growing challenges facing future retirees. With nearly half of working-age adults saving nothing for retirement, the Commission’s remit must be bold and forward-looking.

“Areas ripe for reform include increasing the level of contributions via auto-enrolment and the extension of auto-enrolment to younger workers. Lowering the age threshold would help embed positive savings habits early, giving more people a realistic chance of financial security in later life. However, reforms must be carefully calibrated to reflect the economic pressures facing young earners. Government support will be vital to ensure any changes are both effective and affordable. At the same time, any increase in contribution rates must be handled sensitively to avoid placing undue strain on businesses – particularly in the wake of recent changes to National Insurance Contributions. A staggered or phased approach may be necessary to give employers time to adjust, especially smaller firms already grappling with rising employment costs and tight margins.

"On the state pension, the upcoming age review due by 2027 will be politically sensitive. Accelerating the rise to 68 may be necessary to protect sustainability, but must be justified with updated life expectancy data and a clear understanding of regional disparities. The triple lock, while out of scope for the Pension Commission, remains a fiscal pressure point – forecast to cost £15.5bn annually by 2030 according to the OBR. A broader review of pension adequacy and system sustainability is urgently needed.

“Finally, the proposed inclusion of pensions within inheritance tax rules by 2027 risks damaging public trust in pension saving. While few estates may pay more tax, many families could face unnecessary complexity and distress. We urge HM Treasury to consider a simpler, standalone flat-rate charge that meets policy goals without creating an administrative burden. The industry has offered workable alternatives. It’s time for the government to listen."

Jamie Jenkins, director of policy at Royal London, commented: “The Pension Schemes Bill largely sets out the strategic direction for retirement saving over the next five years, and the formation of a new Pensions Commission will allow us to look beyond 2030 and consider how we improve retirement saving further in the decades ahead, considering the balance between State provision and private saving, and the role that savers themselves play in planning for their retirement. 
 
“While now might not be the right time to raise contribution levels, given other financial pressures, we can’t ignore the more daunting prospect of an increasingly large and widely undersaved population of people in retirement. So now is the time to make a plan to remedy this in future. 
 
“The government’s analysis also reveals the stark 48% gender pensions gap in private pension wealth for women and echoes our own insight. Royal London’s Financial Resilience Report found that men have an average of £92,000 in their pension pots, while women have only £39,000, and we know that more than half (54%) of women say they do not feel confident when saving for retirement, compared to 41% of men.  
 
“We need certainty on the long-term direction of travel for private and State pensions and to ensure the system works well for everyone, so the Pensions Commission’s promise to look at the complex reasons underpinning why people are not saving enough and make recommendations to address this are very welcome.” 
 
Kate Smith, head of pensions at Aegon, added: “To really move the pension dial, we are calling for the new Pension Commission to make bold, brave and possibly unpalatable recommendations to the Government, such as implementing significant increases to auto-enrolment contributions during the next parliament for those on mid and higher incomes.   
 
“Helping people to understand what an adequate retirement income looks like, and how much they need to save to achieve this, could help more people secure a comfortable and sustainable retirement income. Twenty years ago, the first Pension Commission set out replacement rates linked to working age earnings. This is an opportunity for the second Pension Commission to update these and to carry out a detailed analysis of how much people need to save regularly to achieve an adequate retirement income. This could also inform any future increases in auto-enrolment minimum contributions.  
 
“We’re disappointed there is no mention of the 2017 reforms to auto-enrolment. Implementing these could go some way to removing pension inequalities. As widely expected, the government has ruled out any increase to auto-enrolment contribution rates this parliament. Employers may be pleased about this given April’s increase in National Insurance contributions, but the reality is that without higher pension contributions, mandated or voluntary, many people could face a bleak retirement.  
 
“Pensioners will be pleased that there will be no change to the triple lock during this parliament.  But any further increase to the State Pension Age could affect how much people need to save privately to have an adequate retirement income from their chosen retirement age.”