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More than 60% of pensioners risk missing out on adequate retirement, MPs warn

MPs have called for reforms in the pension sector as the cost of living surges. Photo: Getty
MPs have called for reforms in the pension sector as the cost of living surges. Photo: Getty

MPs have called on the government to introduce pension reforms as the majority of Britons are still not saving enough for their retirement, a decade on from auto-enrolment.

The work and pensions committee urged the government to introduce auto-enrolment reforms next spring, while setting up new policy goals to ensure a "new consensus on adequate retirement income" is achieved.

More than 60% of people are at risk of missing out on an adequate standard of living in retirement as the cost of living surges, the committee said.

It added that minimum contributions into pensions are too low and many self-employed and gig economy workers are being excluded from pension saving altogether.

The MPs also noted that savers in their 40s and above "are most at risk if they do not have access to a defined benefit pension, as they have had limited time to build up a pension through auto-enrolment".

Analysis by the Pensions Policy Institute showed that just 39% of households and 37% of individuals are on track for an adequate pension, according to the definition used by the Pensions Commission.

Sir Stephen Timms, chair of the work and pensions committee, said: "While automatic enrolment has been successful in boosting participation in workplace pension saving, many people will be feeling a false sense of security holding on to the idea that putting away the minimum amount will be enough to enjoy a fulfilling retirement.

"With many struggling through a cost of living crisis now is not the time to ask people to find extra money for their pensions, but this does not mean that the new team of DWP [Department for Work and Pensions] ministers can sit on their hands and ignore the dark clouds gathering on the horizon for a future generation of pensioners."

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Automatic enrolment into workplace pensions started on 1 October 2012.

Currently the minimum contribution is 8% of eligible salary, made up of at least 3% coming from employers and the remainder coming from employees and tax relief.

However, the committee argues that many newly auto-enrolled people make minimum contributions, not realising that this will not be enough to give them an adequate living standard in retirement.

The committee said that there are two measures currently used to calculate pensions adequacy, the Pensions Commission’s target replacement rates and the Pensions and Lifetime Savings Association’s retirement living standards.

"There is no consensus on a single definition or on what outcomes the pensions system should be designed to achieve," the report noted.

As a result, it called on the government to "build a new consensus on adequate retirement income and what the pensions system should be designed to achieve" and set out its plans by March 2023.

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The report also said that in addition to examining ways to increase savings rates for those already in schemes, the government should implement the findings of the 2017 auto-enrolment review, to improve retirement outcomes for many part-time and multi-job holding workers.

The Employment Bill should also be brought forward as soon as possible to improve legal protections and access to pension schemes for gig economy workers, it said.

"Moving to a contribution rate of 10% of all earnings, based on an equal share between employers and employees offers a good way forward and would avoid triggering opt-outs if it was driven primarily by firms paying in more," Sir Steve Webb, a former pensions minister who is now a partner at consultants LCP said.

"It is also important that groups such as the self-employed and those working in the gig economy are fully included in the next phase of the project."

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