Major pensions review launched - what it means for your retirement savings
A major review into pension saving has been announced by Labour amid fears that today's workers face a greater risk of poverty in retirement.
Work and Pensions Secretary Liz Kendall will revive the Pensions Commission, which last met in 2006, to look at ways to encourage workers to save more money for their retirement.
Experts have today warned that people looking to retire in 2050 are on course to receive £800 per year less than current pensioners.
Analysis from the Department for Work and Pensions (DWP) also reveals 15 million people were undersaving for retirement, while 45% of working-age adults were not saving into a pension at all.
Around three million self-employed people are said to be saving nothing for their retirement, while only a quarter of people on low pay in the private sector and the same proportion from Pakistani or Bangladeshi backgrounds are saving.
The Pensions Commission previously recommended automatically enrolling people in workplace pensions, which has seen the number of eligible employees saving rise from 55% in 2012 to 88%.
Pensions minister Torsten Bell said: 'The original Pensions Commission helped get pension saving up and pensioner poverty down. But if we carry on as we are, tomorrow's retirees risk being poorer than today's. So we are reviving the Pensions Commission to finish the job and give today's workers secure retirements to look forward to.'
Chancellor Rachel Reeves added: "We're making pensions work for Britain. The Pension Schemes Bill and the creation of pension megafunds mean an average earner could get a £29,000 boost to their pension pots. Now we are going further to ensure that people can look forward to a comfortable retirement.'
What does it mean for your pension?
The most common type of workplace pension scheme is called defined contribution (DC). This is where savers make regular contributions into a pension scheme, and the size of your pot by retirement depends on how much you've saved, and the growth of your investment.
The review will look into whether workers who are part of a DC scheme are saving enough money for retirement. There is another type of pension scheme called defined benefit (DB) which is where you are guaranteed a specific income for life when you reach retirement, based on your salary and years of service.
The review will also look into the state pension, which is separate to any private pension you may have. For men and women, the state pension age is currently 66 - but this is set to rise to 67 between 2026 and 2028.
A further increase to 68 is due to happen between 2044 and 2046. There previously have been calls for this to be brought forward, but a decision on this has been delayed.
The State Pension Age review, which is required by law, will report back by March 2029. The state pension rises every year in line with the triple lock.
The triple lock ensures the state pension rises every April in line with either inflation, wage increases or 2.5% - whichever is the highest.
The Office for Budget Responsibility (OBR) recently warned the annual cost of the triple lock policy is estimated to reach £15.5billion by 2030.
What does the pensions industry think?
Kate Smith, head of pensions at Aegon, said: 'To really move the pension dial, we are calling for the new Pension Commission to make bold, brave and possibly unpalatable recommendations to the Government, such as implementing significant increases to auto-enrolment contributions during the next parliament for those on mid and higher incomes.
'We're pleased the Pension Commission will investigate pension inequalities for key groups such as women, the self-employed and ethnic minorities, which will mean more people will save into a pension.
'Currently too many people are excluded from auto-enrolment as they don't meet the current criteria – they're too young, too old, self-employed or don't earn enough. This includes those with multiple low paid jobs, who are mainly women.'
Caroline Abrahams, charity director at Age UK, said: 'If we're to avoid future generations of pensioners experiencing financial hardship, we need reforms that enable more people to build a decent standard of living, and we need them sooner rather than later to maximise the numbers who can be helped.
'Income for pensioners in the UK is based around both State and private pensions working together to help people enjoy a decent lifestyle once retired. The current system of saving has some significant gaps which have left many current pensioners struggling to make ends meet.
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