Organisations from across the pensions industry have been setting out their views on the work of the Pensions Commission as the consultation period closed this week.
The commission was relaunched last summer and published its interim report in May. In it, Baroness Jeannie Drake, one of the three commissioners leading the work, called for a “new national settlement on pensions”.
With myriad challenges facing the Pensions Commission, the industry and government, including pension gaps, self-employed coverage, and adequacy of income in retirement, there is much work to be done and many views for the commissioners to assess.
Pensions Expert has collated a selection of views from senior representatives, each exploring what they would like to see from the final report when it is published next year.
Getting to a 12% contribution rate
The Association of British Insurers (ABI) has explicitly called for the Pensions Commission to “set out a clear roadmap for gradually increasing automatic enrolment pension contributions from 8% to 12% by the end of the 2030s”.
This would require a “carefully phased approach” to protect affordability, the association said in its response, but could lead to significant boosts to individuals’ pension savings.
The Investing and Saving Alliance (TISA) also supported higher contributions through auto-enrolment. It warned that delaying this transition would “leave millions of savers facing inadequate retirement incomes”, and called for a six-year timetable for raising contributions to 12%.
“The next phase of pension reforms will also need to command broad consensus if it is to stand the test of time,” the ABI said. “Achieving lasting change will require government, the pensions industry, employers and unions to work together to improve retirement outcomes.”
The trade body also called for the lower earnings limit on auto-enrolment eligibility to be gradually lowered to zero to help bring more low earners into pension saving. The legislation for this is already on the government’s statute books, but has yet to be enacted. At the other end of the scale, the ABI also called for the upper earnings limit to be uprated, as it has been frozen at £50,270 since the 2021-22 financial year.
Other changes recommended by the ABI were lowering the minimum age for auto-enrolment to 16 and for HM Revenue and Customs to explore ways to facilitate pension saving for self-employed people through the tax system.
Yvonne Braun, director of long-term savings and health and protection policy at the ABI, said: “The question is no longer whether pension saving needs to increase, but how we get there. The destination is important, but so is the journey. Any increase in contributions must be gradual and predictable, ensuring it remains affordable for both employers and employees.”
Renny Biggins, head of policy for products and long-term savings at TISA, said: “The next phase of reform must help more people save enough for retirement while recognising they have very different incomes, working patterns and opportunities to save. A more inclusive and adaptable system is essential if the benefits of pension saving are to extend beyond those in traditional, stable employment.
“The Pensions Commission is designing policy for a pensions system that is already changing rapidly. Its final recommendations must fit coherently with new forms of consumer support, advances in artificial intelligence, and major reforms already under way, rather than adding further complexity to a fragmented landscape.”
“We support a phased programme of reform that brings more people into saving, recognising any changes must be designed with the realities facing lower earners, many of whom are balancing long-term saving with immediate financial pressures. Retirement security and financial resilience are two sides of the same coin. We look forward to working with the commission, government and industry partners to develop practical solutions that help people build greater financial security both today and in retirement.”
A ‘generational moment’ for retirement adequacy
Laura Mason, CEO for Legal & General’s (L&G) retail division, described the commission as “a generational moment to shape the future of UK pensions”. In its response to the call for evidence, L&G set out its approach to assessing adequacy, which it dubs “Minimum, Replacement, Rent”.
“This replaces a proportion of pre-retirement earnings and housing costs for renters, recognising that adequacy will be shaped by housing tenure as well as pension saving,” Mason explained.
She continued: “The Pensions Commission has an opportunity to establish a durable framework, but it will need to remain agile to ensure adequacy measures, contribution design and retirement pathways can continue to evolve.
“It should take account of many of the reforms already in progress, such as guided retirement, targeted support, and the pensions dashboard. These are changing how savers engage with, consolidate, invest and access their pension savings, but should be given the opportunity to take effect, so the market can evolve in response to evidence.”
“The final report must set a clear framework for adequacy, establish a clear roadmap to raise contribution levels over time, close coverage gaps, and address inequalities, while strengthening support at retirement and ensuring pensions policy reflects changing housing and labour market realities. There are difficult trade-offs between higher contributions, longer working lives and greater state support. It is imperative that the Pensions Commission turns ambition into action through a realistic roadmap that is economically sustainable, behaviourally credible and capable of delivering better outcomes across society.”
The importance of decumulation
Several responses called for the Pensions Commission and the government to make decumulation a “central pillar” of pensions policy. With more and more people now retiring with a majority defined contribution pension without any form of guarantee, respondents said decumulation policy and guidance for those approaching retirement were crucial.
Wealth management firm Rathbones said any decumulation policy also needed to take account of generational differences.
Camilla Stowell, CEO for wealth at Rathbones, said: “We’d like pensions policy to reflect better how people actually live, work and save. Our clients across the UK tell us their retirement planning is rarely just about a pension pot and generally brings together pensions, investments, property, business assets and wider family wealth – and such complexity needs appropriate support.
“A simpler, more predictable system would give people greater confidence to plan for the long term, while better support at retirement would help them make informed decisions when it matters most.”
“Providers, employers, trustees and advisers all have a responsibility to encourage higher levels of voluntary saving wherever possible through better engagement, clearer communications, employer matching and targeted interventions. Increasing minimum contributions and increasing engagement should not be viewed as alternatives but are complementary.”
In its response, the Association of Consulting Actuaries (ACA) submitted reforms aimed at improving adequacy without solely relying on higher contributions.
Saye Mkangama, chair of the ACA’s Adequacy Working Group, said: “The Pensions Commission’s interim report rightly sets out the scale of the challenge. The priority now should be turning evidence into action through practical reforms that can be implemented in the short term. Millions of people are approaching retirement without adequate savings, and the challenge can no longer wait.”
The ACA highlighted that specific support for the emerging collective DC (CDC) model could boost adequacy. The CDC structure is widely viewed as being able to boost retirement income through risk sharing with little impact on contribution rates.
Dear Pensions Commission…
Last year, following the launch of the Pensions Commission, Pensions Expert invited think tanks, charities, trade associations and others to put forward their views, data, research, and hopes for improving pensions adequacy. The result, ‘Dear Pensions Commission’, includes nine articles giving different perspectives from across and beyond the retirement sector. Click the image to explore the report and read the articles.
