Pensions Commission must navigate difficult trade-offs between ambition and action on adequacy

14 July: Iain McLellan, Director at Isio, comments on the Pensions Commission Interim Report

“The UK pensions system has strong foundations, underpinned by automatic enrolment and the state pension, but it is not currently on track to deliver adequate retirement outcomes for a significant proportion of the population. The Commission’s final report must therefore 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.

“First, the Commission must establish a clear and practical definition of adequacy, combining replacement rates with minimum income benchmarks. This would provide a more meaningful measure of whether the system is delivering sustainable retirement incomes, rather than focusing primarily on participation.

“A second priority should be increasing contribution levels over time. Automatic enrolment minimums are currently being depicted as a target rather than what is expected, creating a misleading sense that people are saving enough. Any increases must be carefully phased and designed with affordability for individuals and employers in mind. At the same time, reform must better reflect modern working patterns and bring more self-employed people, lower earners and those with multiple jobs into pension saving.

“Tackling persistent inequalities in pension outcomes and strengthening support at retirement must also be priorities. Guided decumulation pathways, appropriate defaults and collective approaches could help people manage investment, inflation and longevity risks, while retaining the flexibility provided by pension freedoms.

“There are difficult trade-offs between higher contributions, longer working lives and greater State support. It is imperative that the Commission turns ambition into action through a realistic roadmap that is economically sustainable, behaviourally credible and capable of delivering better outcomes across society.”

Read Isio’s response to the second Pensions Commission Interim Report: