Former Labour chancellor Alistair Darling, and David Gauke — a former Conservative Secretary of State of Work and Pensions — will be involved in a new long-term review of the UK’s pension system, being run by the Institute of Fiscal Studies.
The review — which will take two and a half years — will look at how to improve the retirement outcomes of future generations, and will examine whether people are saving enough, and whether they need more support managing pension savings through retirement.
The two former political heavyweights will be joined on a steering group by Joanna Segars, formerly chief executive of the Pensions and Lifetime Savings Association and chair of the board of trustees for Now: Pensions. This group will offer advice to the IFS review team, led by three IFS director, Paul Johnson, Jonathan Cribb and Carl Emmerson.
Johnson said a fresh look at retirement saving in the UK was “long overdue”, with the decline of DB pensions meaning the next generation faces significantly worse retirement outcomes. Other changes, such as the introduction of pension freedom rules and the start of AE 10 years ago have also changed the pensions landscape considerably.
Key findings are recommendations for reform are expected to be published in Autumn 2023. The IFS review will address 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?
Johnson says: “The last decade or so has seen state and private pensions deliver much better outcomes for many pensioners. 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.
He added that over this period there has been rise in the number of self-employed workers, but fewer of them are saving into pensions. He adds: ”Most private sector workers [who have primarily DC pensions] 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.”
This review will be conducted in conjunction with Abrdn’s Financial Fairness Trust.
Darling, steering group member and chair of Abrdn Financial Fairness Trust says: ““Twenty years ago we set up the Pensions Commission which laid out a range of important reforms including auto enrolment. But today much has changed and the landscape is very different. Too many are saving too little for retirement. Many self-employed and those in insecure work don’t have a pension. Increasing numbers are living in the private rented sector, which will lead to higher housing costs in later life. Whilst today, many pensioners are doing well on average and pensioner poverty has been cut drastically, we need a major review to avoid a future where too many won’t have enough to live on in their old age.’
This review has been welcomed by the pensions industry. People’s Partnership director of policy Phil Brown says:: “The IFS’s Pensions Review has the potential to help build the consensus needed to reform the UK pension system.
“This research adds to the growing body of evidence showing that the majority of British workers are under saving for retirement. What’s currently missing is a societal consensus on how we reverse that trend.
“We hope that the IFS’s review will help chart the path towards improving the nation’s financial resilience.”
Standard Life managing director Sangita Chawla adds: “The current pension system is under growing strain with a number of long-term pressures starting to build. As things currently stand many younger and midlife workers are at risk of missing even the PLSA’s minimum standard of living in retirement with the self employed and those who are likely to be renting in retirement especially vulnerable. This is despite the great strides forward made by auto-enrolment and plans to extend it to cover workers from age 18.
“With the onus increasingly on individuals to make complex financial decisions, particularly at the point of retirement, advice and guidance aren’t as accessible as they need to be and greater support is required to avoid people making costly mistakes.
“There are also difficult discussions to be had regarding the scope of the state pension, which is the bedrock of most people’s retirement, at time when the public purse is under huge scrutiny. The IFS team are well placed to look at these challenges in the round and we will follow this multi-year piece of work with interest.”