The revival of the Pensions Commission has broadly been welcomed by pensions experts but caution remains regarding the pressures on young savers and businesses.
The government announced today (21 July) it is relaunching the Pensions Commission, which first ran from 2002 to 2006, as it seeks to address the looming retirement crisis by improving savings rates.
According to government figures, 45% of working-age adults are not saving for retirement and only one in five of the self-employed are putting money into pensions, with lower earners and young people particularly at risk of having little saved to supplement a state pension.
Jason Hollands, managing director at wealth management firm Evelyn Partners, noted there was no mention of boosting auto-enrolment contributions.
“The Commission will report within 18 months, but the pensions minister obviously felt he had to reassure businesses that they would not be mandated to pay more into employee pensions in the medium term, mindful of the headwinds facing many UK firms – not least the recent increase in employer’s National Insurance Contributions, which has been ill received and hit firms’ appetite for hiring.”
He added any future increase to employer AE rates could come at the cost of lower annual salary increases for staff in order to keep the overall labour bill down if it’s not partly offset by NIC cuts, which would effectively be a form of salary sacrifice.
Kirsty Anderson, retirement specialist at Quilter, said auto-enrolment reform is “ripe for reform” but need to be handled “sensitively”.
“Lowering the age threshold [for AE] would help embed positive savings habits early, giving more people a realistic chance of financial security in later life,” she said.
“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.”
On the upcoming review of the state pension age, due by 2027, Anderson said: “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.”
Damon Hopkins, head of DC workplace savings at independent financial services consultancy Broadstone, said he would not be surprised to see an acceleration applied to the increase of the State Pension Age.
“The launch of the State Pension Age Review is a necessary step. The combination of an ageing population and the huge fiscal cost of the state pension would suggest that a change is inevitable. A lower or later state pension would, of course, double down the need for reform in the private savings landscape.”
