Source · Select Committees · Work and Pensions Committee
Recommendation 2
2
Acknowledged
Paragraph: 26
Many newly auto-enrolled people make minimum contributions, not realising that this will not be enough...
Conclusion
Many newly auto-enrolled people make minimum contributions, not realising that this will not be enough to give them an adequate living standard in retirement. The Pensions Commission designed auto-enrolment to get median earners part of the way to its definition of retirement adequacy, with the expectation that they would make additional voluntary savings on top. However, largely they have not done so. Recent analysis by the Pensions Policy Institute for B&CE showed that only 39% of households and 37% of individuals are on track to hit the target replacement rates used by the Pensions Commission to benchmark adequacy. A group at particular risk, is people in their forties and older who do not have access to a defined benefit pension (a pension that pays benefits based on salary and length of service) and have had limited time to build up a pension through auto-enrolment.
Government Response Summary
The government is committed to carrying out further analysis to measure the adequacy of retirement incomes for current savers, and will provide an update of their analysis as soon as the data is available. They consider that a collection of measures provides a greater range of insight than a single measure alone.
Paragraph Reference:
26
Government Response
Acknowledged
HM Government
Acknowledged
Income in retirement is a very important issue that is a key priority for the government. We are committed to carrying out further analysis to measure the adequacy of retirement incomes for current savers. DWP, and parts of the pensions industry, do use various measures to review and assess actual and projected pensioner incomes. Taken together, these provide a helpful indicator of how the system is operating. We provided our last report of undersaving as measured against the Target Replacement Rates (TRR) in the Automatic Enrolment Review 2017. As promised in our letter to the Chair of 26 August, we will provide an update of our analysis as soon as the data is available. We consider that a collection of measures, based on different methodology, provides a greater range of insight, than a single measure alone. This is because for individual savers, ‘adequacy’ is a highly personal judgement - what might seem adequate for some may feel inadequate for others. Establishing a personally acceptable level of provision for retirement involves personal planning, and goes wider than just the pensions system, other forms of wealth will also be relevant. There are a number of ‘adequacy’ measures available to savers including the Pension Commission’s Target Replacement Rates (TRR), the Joseph Roundtree Foundations Minimum Income Standard (MIS) and the more recent Pensions and Lifetime Saving