A NEW independent pensions commission should be introduced by the next government to help boost people’s retirement savings, a report argues.
Thinktank the International Longevity Centre-UK (ILC-UK) said despite drives to encourage a stronger savings culture, many people are unlikely to have adequate amounts of money put by to see them through their later years.
It urged the next government to set up a commission to help savers secure a better retirement income, as soon as possible after the general election.
The commission would define targets for retirement savings, monitor progress towards these targets and decide on whether new policy reforms are needed.
It would report to the Work and Pensions Secretary, the Chancellor and the Prime Minister.
A string of reforms has been introduced in recent years to encourage retirement saving.
So far, around nine in ten people who are being placed into workplace pension schemes as a result of automatic enrolment are choosing to stay in their pension rather than opt out. This proportion is much higher than previous predictions.
Auto enrolment was introduced to head off fears of a looming old age savings crisis, with concerns that people are living for longer but have not been putting enough money aside.
From April, people aged 55 and over will also be handed much greater freedom over how they spend their pension pot and will no longer be herded towards buying a retirement income called an annuity.
Meanwhile, the government is also working to strip away any high and unnecessary charges from people’s pension savings pots.
But the report, titled Consensus Revisited, warned that economic and demographic “storms” on the horizon will hamper people’s ability to save adequately. It argued the UK’s economic recovery is founded on rising household spending but, in the absence of rising incomes, savings will fall and indebtedness will increase.
It also warned the country may be entering a “new normal” period of low investment returns, with average annual returns on bonds and equities expected to be at least 50 per cent smaller than they were in the 30 years prior to the financial crisis.
The report, sponsored by Prudential, said that as people live for longer, the average length spent in retirement has increased over the last 30 years, by more than one-third for men and just under one-fifth for women.
On average, in 2012, women left the workforce at 63, which means they will need to fund around 26 years in retirement, the report said. Men will need to fund around 21 years.
Launching the report, Ben Franklin, senior research fellow at ILC-UK, said: “A new pensions commission is urgently needed in order to look at the problem of retirement income adequacy in a holistic way – taking into account the political and economic realities of our time.”
Tim Fassam, head of public affairs at Prudential, said: “Recent changes have expanded the number of people saving and provided a wider range of choices in retirement.
“While these are important improvements, most people are still not saving enough to provide the retirement they desire.
“Pension decisions are long-term, so stability and predictability are important in encouraging people to save more.”
A Department for Work and Pensions spokesman said: “We introduced automatic enrolment to tackle this very issue and already five million more people are now putting something by for their retirement, ending the decade-long decline in private-sector pension saving.
“By the time this ground-breaking reform is fully rolled out, nine million more people will be saving into a workplace pension.
“As part of our far-reaching reforms, pensioners now receive meaningful increases to the state pension once more, after the reinstatement of the earnings link to pensions.
“Under the triple lock, they are guaranteed an annual increase over whichever is the higher of CPI inflation, average earnings or 2.5 per cent.”
The International Longevity Centre-UK is an independent, non-partisan thinktank dedicated to addressing longevity, ageing and population change.
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