Many people are not saving enough to pay for a decent standard of living over a much longer retirement
The current system of state and private pension provision is not adequate as many people, young and old, expect far more pension than they will get. Under the current defined contribution pensions system, the individual does not know what income the pension will provide and therefore what he or she is saving for. Defined contribution pensions now dominate private pension provision, with risks and uncertainties, and are inadequate for many, especially women. The Committee has concluded:
- The Government should help people be better informed about healthy life expectancies, pension projections, the likelihood of needing social care and its cost, and how best to use their own assets, so that individuals and families can analyse their own situations and make their own informed choices.
- The Government were right to raise the state pension age, but they are now adopting a timetable of increases slower than that recommended by the Turner Commission on pensions and will have to revisit this with rising healthy life expectancy. Those who work beyond state pension age should clearly benefit if they defer taking their pension.
- Auto-enrolment is a big step forward for people who would otherwise not be saving for a pension. However, while helpful, auto-enrolment alone will not solve the problem of under-saving. The scale of pension saving encouraged by this scheme, eventually 8% of an individual’s earnings, will still result in a pension significantly below many people’s expectations unless people save considerably more in addition.
- But saving more is made less likely as the current defined contribution pensions system is not fit for purpose for anyone who is not rich, or who moves in and out of work due to bad health or the need to care for others.
The Committee urges the Government, pensions industry and employers to tackle the lack of certainty in defined contribution pensions and address their serious defects to make it clearer what people can expect to get from their pension as a result of the savings they make.