Unlock the Editor\u2019s Digest for free<\/p>\n
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.<\/p>\n
Ministers should ditch the pensions \u201ctriple lock\u201d as part of a wider overhaul that is needed to prevent millions of private sector workers experiencing a sharp fall in living standards when they retire, a new study has found. <\/p>\n
Some 39 per cent of company workers will face a financial cliff-edge in retirement under current arrangements, a two-and-a-half-year study between the Institute for Fiscal Studies and asset manager Aberdeen\u2019s financial fairness charity found. <\/p>\n
The study projected half of middle and high-earning private sector employees are not on track to reach their \u201ctarget replacement rate\u201d \u2014 a benchmark for avoiding large falls in living standards. <\/p>\n
Some 13 per cent face an income lower than the \u201cminimum standard\u201d set out by the Pension and Lifetime Savings Association, defined as a post-tax income of \u00a313,400 a year per person, or \u00a321,600 for a couple, for most pensioners. <\/p>\n
The lack of pension saving among the self-employed means that as many as two-thirds are projected to fall below the minimum standard, the research found. <\/p>\n
\u201cWithout decisive action, too many of today\u2019s working-age population face lower living standards and greater financial insecurity through their retirement,\u201d said Paul Johnson, co-director of the pension review carried out by the IFS.\u00a0<\/p>\n
To make state pension payments more predictable and affordable over the long-term, the think-tank recommended breaking the \u201ctriple lock\u201d and choosing a new target level as a fraction of economy-wide average earnings, currently about 30 per cent, while ensuring it grows at least in line with inflation.<\/p>\n
Sir Keir Starmer\u2019s Labour government has vowed to protect the triple lock, which was introduced by the 2010 coalition government, and ensures the state pension increases every year by consumer price rises, average earnings growth or 2.5 per cent, whichever is highest.<\/p>\n
The IFS\u2019s intervention adds to the growing chorus of voices calling for an end to the lock, including former pensions minister Baroness Ros Altmann. Its abolition was even advocated by current pensions minister Torsten Bell in his previous role leading the Resolution Foundation think-tank. <\/p>\n
Ministers are preparing to launch a review into pensions adequacy, which is expected to look at the state pension as well as the level workers automatically pay into their pension and the lack of retirement savings among self-employed people.<\/p>\n
The IFS and the \u201cabrdn Financial Fairness Trust\u201d recommended four key areas for reform to help improve retirement outcomes, including mandatory pension contributions from employers.\u00a0<\/p>\n
Johnson said the recommendations gave government a \u201cclear and affordable road map\u201d to help workers save more in an affordable way, shore up the state pension and help individuals make the most of their savings through retirement.\u00a0<\/p>\n
The report recommended ending a practice where employer pension contributions only have to be made if the employee also contributes. Instead, all staff aged 16 to 74 should receive at least an employer contribution worth 3 per cent of their total pay.\u00a0<\/p>\n
It also suggested increasing the minimum default total pension contributions for those with average earnings and higher, to boost private pension saving while protecting the take-home pay of people with low earnings.\u00a0<\/p>\n
Under the current auto-enrolment rules, workers over the age of 22 who earn over \u00a310,000 a year pay at least 8 per cent of qualifying earnings into their pension, of which at least 3 per cent comes from their employer. <\/p>\n
The review also found that 80 per cent of self-employed workers are not saving for a pension, and recommended integrating pension contributions to self-assessment tax returns to encourage saving.\u00a0<\/p>\n
These proposals could generate an additional \u00a311bn per year of private pension saving, the IFS calculated.<\/p>\n
The IFS also laid out plans to improve targeted financial support to alleviate a rise in pension poverty through universal credit and housing benefit, while ensuring the state pension is never means-tested.\u00a0<\/p>\n
Helping people manage their defined contribution pension pots in retirement was also a \u201chuge\u201d and \u201cimmensely difficult\u201d problem with more work needed to consolidate small pots and ensure people are presented with appropriate income options in an accessible manner, it added. <\/p>\n
\u201cPensions need long-term planning and, ideally, a broad consensus,\u201d said David Gauke, former work and pensions secretary and chair of the steering group of the IFS\u2019s pensions review. \u201cThe proposals put forward maintain an important balance between the state, employers and workers.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Unlock the Editor\u2019s Digest for free Roula Khalaf, Editor of the FT, selects her favourite stories in this…\n","protected":false},"author":2,"featured_media":231126,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[51,474,2499,16,15],"class_list":{"0":"post-231125","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-finance","10":"tag-personal-finance","11":"tag-uk","12":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114781866183936070","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/231125","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=231125"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/231125\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/231126"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=231125"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=231125"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=231125"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}