Aegon has appealed to the government to clearly define what pension adequacy means in the second phase of its Pension Review to help reduce pension inequalities in the UK.
Ahead of the chancellor’s upcoming Mansion House speech, Aegon is calling on the government to focus on a raft of measures.
These include: building a consensus on what constitutes an adequate retirement income; conducting a detailed analysis on how much people need to save to achieve this; implementing recommendations from the 2017 auto-enrolment review and expanding the upper age to age 75; and introducing a pension solution for the self-employed using the principles of auto-enrolment.
Aegon’s head of pensions Kate Smith said: “We hope the chancellor will unveil details of the highly anticipated review of pension adequacy as part of her Mansion House speech next Tuesday.
“This is a pivotal opportunity to reach a consensus on what constitutes an adequate retirement income. The pension review is an opportunity to really move the dial on pensions adequacy for this and future generations of pension savers before it’s too late.”
Smith said adequacy is variable and should be linked to replacing a proportion of working age earnings. For lower earners, the state pension may provide an adequate retirement income, but medium and higher earners may need to supplement it with private and workplace savings, she said.
“Once individuals understand what might be an adequate retirement income for them, the industry can offer guidance, possibly through targeted support, around whether they need to contribute more to achieve this.
“This is needed more than ever, with the pensions minister having ruled out any increase in minimum auto-enrolment contribution rates during this parliament.
“Remaining stuck at 8% of a band of earnings for the foreseeable future means auto-enrolment is unlikely to deliver adequate retirement income savings for all but the lowest earners. Yet most are in the dark about how much they need to save above the minimum.”
Smith warned that many people are currently excluded from auto-enrolment due to age, earnings and employment status, meaning 45% of working age people in the UK are not saving in a pension. She added that a pension solution for the self-employed using the principles of auto-enrolment is “desperately needed”.
“Implementing the 2017 reforms to auto-enrolment would go some way to reducing pension inequalities, including closing the pension gender gap, by helping more people to save more, earlier, and for longer,” Smith said. “As people have longer working lives, we believe the upper age should rise to 75, rather than stopping at state pension age.”
