New Pensions Commission should aim to boost both retirement incomes and ‘rainy day’ savings

The new Pensions Commission should complete the achievements of the original Pensions Commission by both boosting future generations’ living standards in retirement and taking on the equally pressing ‘rainy day’ savings challenge people face today, the Resolution Foundation said today (Monday).

The original Pensions Commission, which reported back in November 2005, has already transformed living standards for current and future pensioners for the better. But the job is not yet complete.

Resolution Foundation analysis finds that under current policy – comprising the State Pension and auto-enrolment with an eight per cent default contribution rate – the typical earner can expect to replace just 51 per cent of their pre-retirement earnings. With voluntary contributions falling well below the levels envisioned by the original Pensions Commission, many are on track to fall well short of its recommended 67 per cent target replacement rate.

However, the current one-size-fits-all system of auto-enrolment creates risks and needs reform. Some low-earners may be saving more than they can afford, or need to, while others – particularly middle- and higher-earners – are still saving too little.

Decent pension pots are not the only saving challenge families face today either, with one-in-three working age adults living in families with savings of less than £1,000. Higher default contribution rates will make it harder for people to save into ‘rainy day’ accounts.

Greater flexibility will be needed therefore to reduce the tension between saving for retirement and saving for a rainy day, says the Foundation.

Molly Broome, Senior Economist at the Resolution Foundation, said:

“Britain’s pensions revolution has been heading in the right direction, but it is not yet complete, and the new Pensions Commission should complete the journey.

“More people are saving for their retirement, but many are still not saving enough, while families often struggle to save enough for tomorrow, let alone retirement. One-in-three lack access to basic levels of easy access savings.

“The new Commission should therefore rise to these twin challenges of boosting both retirement incomes and ‘rainy day’ savings, by making our savings system more flexible.”