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Your Later Life Q3 2023

Five steps to improved pensions adequacy for all

Senior couple with a laptop at home
Senior couple with a laptop at home
iStock / Getty Images Plus / zamrznutitonovi

Nigel Peaple

Director of Policy and Advocacy, Pensions and Lifetime Savings Association

More people are now saving into a workplace pension, thanks to automatic enrolment. However, at today’s pension savings rates, many won’t save enough to achieve the retirement they might expect.

If the UK does not increase its pension saving, people will be left with no choice but to keep working late into their 60s. We are calling for a roadmap to put the UK on track. Our ‘Five Steps to Better Pensions’ sets out the changes our system needs to avoid sleepwalking into a pension adequacy crisis.

New objective for the UK pension system to be adequate, affordable and fair

Without a clear objective, it’s hard to create the right system or evaluate if it is delivering. Our objectives mean our system aims for nobody to have to live their later life in poverty, for everyone to be protected from under and over-saving and for the costs of pension saving to be balanced between employers and employees.

Increasing the State Pension to prevent pensioner poverty

Although we have seen the biggest increase to the State Pension this year — up to £10,600 — this was necessary given the increased cost of living. For people to avoid poverty in later life, the state pension needs to increase further.

Opening automatic enrolment to more people and increasing contributions

Minimum automatic enrolment contributions should gradually increase from the current level of 8% up to 12%, starting after the cost of living crisis has eased in the later 2020s and finishing in the early 2030s. Employers should also increase their share of the burden of saving by paying the same as their employees.

For people to avoid poverty in later life, the state pension needs to increase further.

Extra help for people with exceptionally low pensions

Increased contributions and saving from the first pound of salary would give people a bigger salary base on which to build their savings. However, other groups still need more help from policy interventions, including women (especially those with caring responsibilities), people who work multiple jobs and gig economy workers. These groups often miss out on automatic pension contributions.

Industry initiatives

Our final call is for industry initiatives to help make the most of the money being saved. Initiatives include the nationwide Pay Your Pension Some Attention campaign; Pensions Awareness Week; the Retirement Living Standards; and digital tools, such as pension dashboards.

Our objectives allow for balance — between future-proofing retirees’ incomes in the coming decade and recognising the cost of living crisis. Delaying plans for better pension adequacy could see today’s cost of living crisis become tomorrow’s cost of retirement crisis. These five steps to better pensions can help everyone secure a good income at retirement.

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