Calum Cooper, Head of Pension Policy Innovation, Hymans Robertson (member of the consortium), says: “This is a timely and valuable report from the Institute for Fiscal Studies’ Retirement Savings Consortium. Automatic enrolment (AE) has been a huge success. It’s brought millions more people into pension saving. However, that participation is not the same as adequacy and this report tackles that challenge head-on. The report also highlights an important employer reality. The impact of reform will not land evenly. Employers have just absorbed higher National Insurance costs and many are already planning for future salary sacrifice changes. At the same time, productivity growth remains weak and economic uncertainty is high. Against that backdrop, employers will want to understand how any increase in minimum contributions affects their workforce, pay profile and business model. For some sectors, especially those with large numbers of lower-paid or minimum wage workers, there are simply fewer levers to pull. The IFS scenarios provide a useful framework for that kind of planning.
Hannah English, Head of DC Corporate, Hymans Robertson (member of the consortium), says:“From an employer perspective, the how matters as much as the how much. A clear roadmap will be vital. Long lead times and gradual escalation will be essential. Reform must also be simple to operate as complexity creates cost, compliance risk and confusion. Employers are more likely to engage positively if the direction of travel is clear and the system is hard to get wrong. Most importantly, adequacy is not just a pensions issue. It is a workforce issue. Better pensions can support financial resilience, workforce planning and productivity. They help people make better decisions about when and how they retire. Higher contributions are likely to be part of the solution, but they are not the whole answer. Every pound saved needs to work harder through strong value for money, effective investment and better retirement support. There’s no cost-free route to higher retirement incomes. This report from the IFS makes it clear that the question for the Second Pensions Commission is how to improve outcomes while balancing affordability for workers, employers and the Exchequer. If pension reform gets those things right, it can become a success not just for savers, but for employers and the wider economy too.”
Catherine Foot, Director of the Standard Life Centre for the Future of Retirement said: "The Pensions Commission's interim report rightly highlighted the scale of the retirement savings challenge facing millions of workers. Automatic enrolment has transformed pension participation, but current minimum contribution levels are unlikely to deliver adequate retirement incomes for many people, making further reform essential. Today's report reinforces the case for action. It shows that higher pension contributions and broader pension coverage could help significantly more people achieve adequate retirement incomes, particularly younger generations who have longer to benefit from reforms. In particular it correctly highlights the earnings thresholds limit the amount people save and potentially give them a false sense they are saving more than they are. We believe the long-term ambition should be to remove these limits and increase minimum contributions from 8% to 12%, delivered through a clear, phased and affordable roadmap. At the same time, reforms must recognise that people's financial circumstances change throughout their working lives. Any package should balance better retirement outcomes with the financial pressures households face today. Policymakers should therefore explore greater flexibility within the system, including temporary opt-down or pause mechanisms, allowing people facing short-term financial pressures to remain engaged with pension saving rather than opting out altogether. By combining higher contributions, broader coverage and greater flexibility, we can build on the success of automatic enrolment and create a system that improves retirement outcomes while remaining realistic about the challenges many households and employers face today."
IFS Retirement Savings Consortium Report
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