Government must act to boost future saving rate and scheme enrolment or risk inadequate retirements for pensioners, MPs warn

More than 60% of people are at risk of missing out on an adequate standard of living in retirement1 despite the introduction of auto-enrolment, MPs say today, with a report warning that minimum contributions to pensions are too low and that many self-employed and gig economy workers are being excluded from pension saving altogether.

The report from the Work and Pensions Committee finds that people over 40 who have had limited time to build up their pension pot through auto-enrolment are particularly at risk if they do not have access to a defined benefit pension (which pays pension benefits based on salary and length of service).

Recognising that the middle of a cost-of-living crisis is not the time to ask people to pay more into their pensions, the Committee calls on the Government to start building a consensus now on the need for change and to draw up a plan for introducing higher minimum contributions to workplace pensions in the future.

In addition to examining ways to increase savings rates for those already in schemes, the Committee calls on the Government to implement the findings of the 2017 auto-enrolment review, to improve retirement outcomes for many part-time and multi-jobbed employees. The Employment Bill should be brought forward as soon as possible to improve legal protections and access to pension schemes for gig economy workers.

With just 16% of the self-employed saving for a pension, the Government should also trial new ways of defaulting self-employed people into pension saving.

Chair's comment

Rt Hon Sir Stephen Timms MP, Chair of the Work and Pensions Committee, said: “While automatic enrolment has been successful in boosting participation in workplace pension saving, many people will be feeling a false sense of security holding on to the idea that putting away the minimum amount will be enough to enjoy a fulfilling retirement. The blunt truth is that many employees need to save more but do not realise it. The Government must urgently consider how to boost saving, including examining the case for increasing minimum contributions, before it is too late.

Attention also needs to be given to the forgotten groups excluded from auto-enrolment, such as the self-employed and some gig economy workers. These people are at real risk of being left behind in retirement unless the Government steps in to ensure they have access to auto-enrolment or similar schemes.

With many struggling through a cost-of-living crisis now is not the time to ask people to find extra money for their pensions, but this does not mean that the new team of DWP ministers can sit on their hands and ignore the dark clouds gathering on the horizon for a future generation of pensioners. Without action to prepare the ground now, many people will feel the reality of this coming catastrophe in their later years.”

Main conclusions and recommendations

Are people saving enough?

• 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. Analysis by the Pensions Policy Institute showed that only 39% of households and 37% of individuals are on track for an adequate pension according to the definition used by the Pensions Commission.
• People in their 40s and older are most at risk if they do not have access to a defined benefit pension, as they have had limited time to build up a pension through auto-enrolment.
• By March next year the Government should set out its plans to build a new consensus on adequate retirement income and what the pensions system should be designed to achieve.

The 2017 review of auto-enrolment

• The Committee calls on the Government to introduce the necessary legislation to implement the recommendations of the review no later than the beginning of the next session of Parliament. The measures would improve retirement outcomes for many part-time workers, disproportionately women, and for workers in the gig economy.

Minimum auto-enrolment contribution rates

• The Committee welcomes the former Pensions Minister’s aspiration to work towards a 12% minimum contribution rate, as in Australia. There are good arguments for starting with an increase in employer contributions to 5%, level with employees. Any plan should aim to increase pension saving for the right people at the right time, with particular regard to the impact on low earners.
• The Government should say whether it considers an increase in minimum contributions possible in the foreseeable future. If not it should explain how it intends to address the challenge of many people being on course for retirement incomes they will not think adequate.

Self-employed people

• The number of self-employed people saving in a pension has declined since the late 1990s, when it was around 48%, to some 16% now.
• HM Treasury and DWP should work together to set a date to trial ways to default self-employed people into pension saving and consult on the proposal to increase National Insurance paid by self-employed people, giving them the option to have these addition contributions paid into a pension, if they also contribute.

Gig economy workers

• The Committee repeats its recommendation that the Government should bring forward an Employment Bill as soon as possible to increase legal protection for people in low-paid work and the gig economy and allow them to benefit from auto-enrolment.

The gender pensions gap

• DWP should work across government and with stakeholders to agree a definition of the gender pension gap and a target to reduce it.

Guidance

• The Government should do more to raise awareness of the free, impartial pensions guidance on offer from MoneyHelper Pensions and address barriers to pension schemes and employers providing more guidance and support to savers.

How to move forward

• A new office should be set up tasked with building and maintaining an evidence base; explaining the trade-offs involved in different policies; and reporting regularly to Parliament on progress in meeting objectives relating to retirement adequacy and the gender pension gap.

Further information

• Read the full report (HTML)
• Read the full report (PDF)
• Read the report summary
• Find all publications related to this inquiry, including oral and written evidence

• Inquiry: Protecting pension savers – five years on from the pension freedoms: Saving for later life