Labour has announced a significant review of pension saving to address concerns about the potential increase in poverty among future retirees. Liz Kendall, the Work and Pensions Secretary, will revive the Pensions Commission to explore strategies for encouraging workers to save more for retirement. The Department for Work and Pensions (DWP) has also disclosed plans for a review of the state pension age, which is set to reach 68 by 2046.
Current projections suggest that individuals looking to retire in 2050 may receive £800 less annually compared to current pensioners. Additionally, DWP analysis indicates that 15 million people are not saving enough for retirement, with 45% of working-age adults not contributing to a pension fund.
Approximately three million self-employed individuals are reported to be saving nothing for retirement, while only a quarter of low-income earners in the private sector and the same proportion from Pakistani or Bangladeshi backgrounds are actively saving. The Pensions Commission has previously recommended automatic enrollment in workplace pensions, leading to a significant increase in eligible employees saving from 55% in 2012 to 88%.
Pensions Minister Torsten Bell emphasized the importance of securing retirements for current workers to prevent future generations from facing financial challenges in their later years. Chancellor Rachel Reeves highlighted the positive impact of recent pension-related legislation and initiatives in boosting retirement savings for average earners.
The review will focus on evaluating the adequacy of savings for retirement under defined contribution (DC) pension schemes, as well as examining the state pension system. The state pension age is currently 66 for both men and women, with plans to increase to 67 by 2028 and potentially to 68 by 2046. The triple lock mechanism ensures that the state pension increases annually in line with inflation, wage growth, or a minimum of 2.5%.
Experts, including Kate Smith from Aegon, are urging the new Pension Commission to propose bold recommendations to address pension inequalities and enhance pension savings, particularly for underrepresented groups. Age UK’s Caroline Abrahams stressed the importance of timely reforms to ensure a secure financial future for retirees and bridge existing gaps in the pension system that have left many pensioners financially challenged.