The current pension system is not meeting the needs of a large proportion of future retirees and needs “urgent” policy change, according to a new report.
The report from Phoenix Group’s think tank, Phoenix Insights, has set out five priority areas the government should focus on in the next phase of its pension review.
It said, “urgent” policy change is needed to address widespread under-saving in the UK.
These areas were: furthering pension auto-enrolment, creating a more flexible and engaging saving system, having better support for decumulation decisions, employment up to the state pension age and looking at the future of the state pension.
Phoenix Insights suggested incrementally increasing auto-enrolment contributions based on an agreed set of economic metrics while also reconsidering how to expand the qualifying criteria in conjunction with any decision to increase contribution rate.
The report also recommended protecting lower earners by improving the flexibility of auto-enrolment, including requiring employers to continue their contribution during opt-out and exploring introducing sidecar products to allow employees to have emergency access to some contributions.
Gail Izat, managing director for workplace pensions at Standard Life, part of Phoenix Group, explained: “The single biggest lever we can pull to boost savings adequacy is to increase minimum auto-enrolment contributions as while opt-outs have remained low, most people leave their pension contributions at the eight per cent minimum which in most cases is not enough to secure a decent standard of living in retirement.”
The report urged the government to launch pensions dashboards at the “earliest opportunity” and invest in their promotion.
Another recommendation from the report was to reform the current advice and guidance regime to service a wider audience including allowing new solutions such as targeted support to emerge.
Phoenix Insights wanted the government to clearly define the requirement to offer decumulation defaults and expand to contract-based schemes if benefits could be demonstrated.
Catherine Foot, director of Phoenix Insights, said: “The government’s commitment to assess retirement adequacy is a critical opportunity to set out a plan to tackle under-saving and improve the retirement prospects of future generations.
"As many as 17mn people are not saving enough to achieve the retirement they want, and the next two decades is when the effects of the savings crisis will really start to bite.”
Further recommendations included developing a cross-departmental strategy to address unemployment and economic inactivity for workers aged 50 and over.
While also promoting inclusive employment practices such as flexible work, paid carers leave and support for health and wellbeing across workplaces to nurture an age friendly culture.
Phoenix Insights also suggested the state pension adequacy review be conducted with public engagement in mind, to ensure any changes in coverage and level are “fair, adequate and sustainable”.
The review should also use a single set of definitions of adequacy across workplace and state pension policies, especially in defining under-savers and the protection they need.
