More than half of households are not saving enough to maintain their living standards in retirement, a committee of MPs has heard.
Giving evidence to the Work and Pensions Committee about where automatic enrolment into workplace pensions needs to improve, Phil Brown, director of policy for B&CE, provider of the People’s Pension, said: “Pension adequacy… is something we’re still aspiring to at the moment…
“The research we’re doing with the Pensions Policy Institute (PPI)… demonstrates that more than half of the population of Great Britain will actually not achieve the adequacy rate set by the Pension Commission.”
Away from the hearing, B&CE released initial research findings from the PPI and itself, indicating that 54 per cent of households were not saving enough to meet rates set by the Pension Commission in 2004. It said data from the Wealth and Assets Survey was used for the calculations.
B&CE added that even taking additional assets and housing into account, its initial findings suggest more than a third of households would still not be on track to maintain their living standards. Full details of the findings will be published this summer.
Currently, the minimum that can be contributed into workplace pensions is 8% of eligible earnings. Contributions include staff and employer contributions and tax relief. But the minimum is unlikely to be enough for many people to enjoy a comfortable retirement.
Asked by the Work and Pensions Committee how savings rates could be increased above 8% in the near future, Mr Brown told the hearing: “I think that’s a really, really important point…
“In a cost-of-living crisis, it doesn’t feel like the right time to be increasing contributions and lots of care is needed with low earners…
“There remains consensus that the figures aren’t right at the moment, they need increasing.
“We probably need to build more evidence about what the increase rate should be.
“But most of all we need a trigger for when it’s right to implement it… Now would not land well with those on lower earnings.”
Speaking about pensions advice and guidance, Mr Brown told MPs: “When it comes to actually retiring, we expect (people) to be part financial adviser, part economist, part fund manager, probably part doctor – and they probably need a crystal ball as well.
“And most people don’t have that unique set of skills. To plug that gap I would say that providers of pensions need to be able to give more guidance than they do today.”
Will Sandbrook, managing director for strategy, analytics and Nest Insight at pensions provider Nest, told the hearing: “We need to make some more progress in understanding what a good outcome in retirement looks like for people relative to their working age situation.”
He later told MPs: “When we think about what’s the right level of contribution for people for their retirement, we can’t just think about the impact in retirement, we have to think about: Are people better off as a whole, through their working age and into retirement?”
He also told the hearing that the current workplace pensions system is “very binary”, as staff who do not make the minimum pension contributions also give up the right to receiving pension contributions from their employer.
Joanne Segars, chair of the board of trustees at NOW: Pensions, told the hearing: “It is about having that informed debate about what the right level of contributions is.”