Researchers at the Institute for Fiscal Studies (IFS) published a major report on July 2nd, to improve the situation for future pensioners in the longterm. Always conscious of cost some of the recommendations are controversial, but others are welcome. This work will tie in to a future pension review by the government, which we will be monitoring closely.
The report explains the current auto-enrolment and single tier state pensions system. However, the challenges of inadequate savings amounts and an ageing population (life expectancy has recently starting to rise after stalling due to Covid) has put a lot of pressure on the state pension system.
The report has key recommendations which the researchers claim will stabalise and support the pension system in the future:
State pension. IFS propose a ‘four-point guarantee’ for the state pension. This guarantee means that: (1) a clear earnings-linked target for the new state pension should be set to improve predictability and to make sure that pensioner incomes keep up with increases in living standards; (2) the state pension will always increase in line with at least inflation; (3) the state pension will never be means-tested; and (4) the state pension age should continue to increase as longevity at older ages rises, but not by as much as that increase in longevity.
Private pension saving. Many need more income in retirement. Too many employees miss out on employer pension contributions, so minimum employer contributions should be extended to almost all employees and apply from the first pound of their earnings. The automatic enrolment system should help people save at points of life when it is easier for them to do so. By increasing defaults for total pension contributions when individuals are on (and above) average earnings, the government can protect take-home pay when individuals are on low earnings, but still deliver a boost to many people’s retirement incomes.
The government should make it easier for self-employed people to participate in a private pension, utilising HMRC’s Self Assessment system and drawing on the lessons of what has made automatic enrolment such a success in boosting workplace pension participation among private sector employees.
