Labour’s pensions review is a welcome step. Let’s hope they use it for positive change

Labour’s pensions review is a great opportunity for government to tackle some of the thornier problems facing the future of private pension saving, helping today’s workers avoid becoming tomorrow’s poverty-stricken pensioners. 

We hear all the time about how tough life can be for pensioners on lower incomes, and we at Age UK are determined to do all we can to help future cohorts avoid the same fate – prevention is better than cure. It’s very welcome the government is on the same page. 

The introduction of automatic enrolment into workplace pension saving over the last ten years has transformed the landscape. Millions more people are now saving for their retirement, and it’s generally regarded as one of the great political successes of the 21st century. But there are still some groups who either aren’t saving or aren’t saving enough, and it’s crucial that action is taken to help.

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Several million self-employed people, who for obvious reasons can’t be auto-enrolled, aren’t saving anything. Others – including those on low incomes, often women working multiple jobs – don’t earn enough in one job to meet the qualifying threshold so also aren’t saving. The government reckons that broadly speaking it’s about 50-50 in terms of savers versus non-savers among the working age population. 

It also thinks that by 2050, retirees will on average by £800 a year worse off than the current pensioner cohort. This is largely due to the decline of final salary pensions, which these days are largely a luxury only some public sector workers enjoy. 

As a result, among savers many aren’t saving enough to set themselves up for retirement. According to the Institute for Fiscal Studies, 13% of employees aren’t saving enough to meet a retirement minimum income standard, rising to 32% of lower paid workers. This shortfall will undoubtedly lead to widespread hardship when people come to retire. 

So what can be done to address this? The review will undoubtedly look at how self-employed workers can be encouraged to save, through mechanisms like pre-filling the right box on a tax self-assessment form. 

Ways of helping other non-savers would also be welcome, especially when people have dropped out of the workforce – for example if people become carers, as many do in their 50s and beyond, then some form of private pension saving credit would help people boost their retirement income. There’s also the question of how to help people who drop out of the workforce with health or disability issues. 

A caveat to all the above is that it’s not always appropriate for everyone to be saving all the time. For many people, especially but not exclusively low earners, there may well be other immediate financial priorities. The cost of living is troubling for many, and a pension can be the last thing people need to worry about.

Possibilities to help here include the widespread use of ‘Sidecar Savings’, which can help people build up a flexible savings pot alongside their pension they can access in times of need, which would potentially make the near one-in-three (31%) of UK adults with less than £1,000 savings more confident about locking their money away in a pension. 

There will also be other ideas under consideration, such as allowing employees to opt-out of their individual contributions while still receiving money from their employer each month, removing the earnings threshold so everyone can save, and – the headline idea – increasing overall contribution rates.

It’s also important to consider the state pension, which is not in scope for the review. This plays a crucial role, with most pensioners receiving most of their income from this source. Age UK is concerned that not including this in the review will make it difficult to analyse what’s needed from private savings. 

With so much debate over the future of the state pension, in particular its uprating mechanism, the triple lock (which means each year the state pension rises by the lowest of average earnings, inflation, or 2.5%), the government could have used this opportunity to set out a clear vision for its future, potentially clearly stating what value the state pension should be set at for years to come. Having stability here would be helpful for many people – although given that it’s a political minefield we can also understand why they’ve not gone down this route. 

But the opportunity to build a consensus on how to protect future pensioners from a miserable retirement on a low-income is extremely welcome, and we will be working with the government and reviewers to help make this happen.

Chris Brooks is head of policy at Age UK.

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