The Institute for Fiscal Studies has launched a wide-ranging review of the pension system, looking at whether people are saving enough and if more support is needed for people to use their funds appropriately.
The Pensions Review is a multi-year project from the think tank that will look into the consequences of current pension policy, the economic environment and individual behaviour for living standards in retirement.
The goal is to then provide recommendations for reform to “improve outcomes for future generations of pensioners across the UK”.
The IFS’s director Paul Johnson said a fresh look at the retirement saving environment was "long overdue".
He added: "Automatic enrolment has brought millions into workplace pensions, but all too often at much lower rates of saving than the Pensions Commission thought would be needed.
"Despite the number of self-employed people growing considerably, many fewer of them are saving in a pension. Most private sector workers are left having to manage considerable risks – not least over how long their retirement will be – which for many will be incredibly difficult to balance well."
The IFS has said that a review of pensions needed to happen now to give people a chance of “avoiding a future that looks much worse than the present”.
This is due to the decline of defined benefit pensions, low interest rates, falling homeownership and low typical contributions to defined contribution schemes.
The review will centre on three key questions:
- Are people saving appropriately for retirement, in terms of both the amount and the form of saving, and if not, how can government policies help?
- How should the state support people from late working life into and through retirement?
- Do people require more assistance to use their wealth appropriately through retirement?
Preliminary findings will be published over the next two years, with the first main report expected in Autumn 2023.
Key findings and recommendations for reform are then expected to be published in early Summer 2025.
The review is led by three directors at the IFS – Jonathan Cribb, Carl Emmerson and Johnson – and will also benefit from the advice of a steering group composed of Alistair Darling (former chancellor of the Exchequer), David Gauke (former Secretary of State for Work and Pensions) and Joanne Segars (former chief executive of the Pensions and Lifetime Savings Association).
'Vital' to focus on future generations
The report, published today (April 20), highlighted that many employees are saving very little for retirement, with 60 per cent of the middle-earning private sector employees contributing to a pension currently saving less than 8 per cent of their earnings.
Nearly 90 per cent are saving less than the 15 per cent of earnings that the Pensions Commission, published in 2004, thought more appropriate.
Added to this is the fact fewer than one-in-five self-employed workers are saving into a pension.
There are also concerns that those retiring with defined contribution pension pots face considerable difficulty and risk in managing their finances through retirement.
The report stated: “While pension freedoms do give people the opportunity to take control of their own finances, even for the most numerate, the decisions on how to draw their pension wealth – which need to be made right through retirement – are difficult.”
