As the main political parties started rolling out their election manifestos this week, calls for a systemic overhaul of private and state pensions have come in an open letter addressed to those vying to form the next government.
Signed by businesses, employers, trade bodies, think tanks and charities, the letter urged all political parties to commit to a major review of the pensions adequacy of private and state pensions in the next parliament.
Failure to tackle the widespread issue of “undersaving” into pension pots could have “dire consequences”, the signatories warned, adding that inaction could lead to “strain on social support systems and the potential increase in retirement poverty”.
Long-term savings and retirement business, the Phoenix Group, called for the review to include an increase in the minimum auto-enrolment (AE) pension contribution rate, which has been fixed at 8 percent since April 2019 with no plans for further increases.
Up auto-enrolment rate
It said that while AE has been successful in boosting pension participation (now at 79 percent of employees up from 47 percent before AE was introduced in 2012), the current minimum saving rate is not enough to enable people to build up an adequate retirement income.
The letter said: “Lacklustre real wage growth, combined with the current minimum automatic enrolment contribution rate of 8 percent is not enough to meet many people’s future retirement income needs. Fourteen million defined contribution pension savers are not on track for the income they expect. The current state pension age is also scheduled to increase to 67 from 2026, which could create a further income gap.
“We therefore believe a review of pensions adequacy – covering both state and private pensions – is now vital. The next parliament will be a golden opportunity for the UK government to conduct the review. We are calling on all the major political parties to commit to a holistic pensions adequacy review in the next parliament to ensure all existing and new policies deliver a suitable level of retirement income.”
Bridge the income gap
The letter said the next government urgently needs to bridge the retirement income gap for current and future generations.
“Any potential solution, for example by increasing AE contribution, must also be coupled with thorough thinking on affordability, the state pension age, and ensuring the best possible investment returns. Acting swiftly will also provide a boost to the UK economy with increased saving potentially increasing investment in the UK by up to £10 billion.”
Letter signatories included: Age UK; Capital Markets Industry Taskforce; Centre for Ageing Better; CIPD; CBI; Demos; Independent Age; Living Wage Foundation; Phoenix Group; The Investing and Saving Alliance (TISA); and Tom McPhail, The Lang Cat.
