Phoenix Insights sets out five priority areas to improve retirement adequacy ahead of government review

• Phoenix Insights, Phoenix Group's longevity think tank, has set out recommendations from five key areas it believes should be included in the government's upcoming retirement adequacy review
• Up to 17 million UK adults are not financially on track for retirement, previous Phoenix Insights research found²
• Projections suggest the retirement crisis will take hold within the next two decades without policy change to address widespread under-saving³

Phoenix Group's longevity think Phoenix Insights has published its latest report outlining policy recommendations and a roadmap for the government's upcoming review of retirement adequacy in the next phase of its pension review. Urgent policy change is needed to address widespread under saving in the UK and the review provides a golden opportunity to assess the retirement landscape to improve people's future.

Modelling from Phoenix Insights suggests as many as 17 million UK adults are not on track to retire when they want to on the income they want², and projections show the under-saving crisis will come to a head in the next two decades with people retiring in 2030s and 2040s the least financially prepared for life after work³.

The government has not yet published its approach to the adequacy review but ahead of this Phoenix Insights recommends five priority areas it believes should be included to improve the retirement of future generations. These are: furthering pensions auto-enrolment, a more flexible and engaging saving system, better support for decumulation decisions, employment up to the state pension age, and the future of the state pension.

Catherine Foot, Director of Phoenix Insights, Phoenix Group's longevity think tank, comments:

"The government's commitment to assess retirement adequacy is a critical opportunity to set out a plan to tackle under-saving and improve the retirement prospects of future generations. As many as 17 million people are not saving enough to achieve the retirement they want, and the next two decades is when the effects of the savings crisis will really start to bite.

"Any changes will have a long-term impact so it's important the review looks at the retirement landscape as a whole and how the different policies work together. This should include a review of the private and state pension systems to ensure people can achieve an adequate retirement income, and addressing how people engage with their saving and draw money from their pension.

"For people in their 50s and 60s, being in work can be the difference between having financial security or not later in life, so we believe the review should also look at how we can better support the over-50s to remain in work and continue to earn and save if they want to or need to."

Gail Izat, Managing Director for Workplace Pensions at Standard Life, part of Phoenix Group, said:

"It's good to see savings adequacy form a key part of the new government's Pensions Review. The vast majority of people now save for retirement via auto-enrolment (AE) and we hope extension of the scheme will feature prominently.

"The single biggest lever we can pull to boost savings adequacy is to increase minimum AE contributions as while opt-outs have remained low, most people leave their pension contributions at the 8% minimum which in most cases is not enough to secure a decent standard of living in retirement. There are international examples of higher minimum contributions strengthening savings adequacy - in Australia, for example, contributions will rise to 12% next July and people have a higher anticipated standard of living compared to the UK.

"It's difficult to predict what the future will look like but we do know that without action to help people save now we risk sleepwalking into a retirement crisis. It's also important that future reform pays due regard to people who might struggle to pay higher contributions and to employers, and we'd like to see the Review take a fully joined-up approach with consideration made to workplace, personal and state pension provision as well as the wider economic environment."

Phoenix Insights: 5 priority areas and recommendations for the government's retirement adequacy review

Furthering automatic enrolment

• Incrementally increase auto-enrolment contributions based on an agreed set of economic metrics.
• Reconsider how to expand the qualifying criteria in conjunction with any decision to increase contribution rate.

A more flexible and engaging saving system

• Protect lower earners by improving the flexibility of auto-enrolment, including requiring employers to continue their contribution during opt-out and exploring introducing sidecar products to allow employees to have emergency access to some contribution
• Launch Pensions Dashboards at the earliest opportunity and invest, alongside industry, in their promotion.

Better support for decumulation decisions

• Reform the current advice and guidance regime to service a wider audience, including allowing new solutions such as targeted support to emerge
• Clearly define the requirement to offer decumulation defaults and expand to contract-based schemes if benefits could be demonstrated.

Employment up to state pension age

• Develop a cross-departmental strategy to address unemployment and economic inactivity for workers aged 50 and over.
• Promote inclusive employment practices such as flexible work, paid carers leave and support for health and wellbeing across workplaces to nurture an age friendly culture.
• Create a national strategy for careers guidance and advice that is adequately funded and enables universal access to free independent careers support.
• Fully use devolved powers to ensure local skills strategies reflect local need and demographics.

Align plans for workplace and state pensions

• SPA review should be conducted with public engagement in mind, to ensure any changes in coverage and level are fair, adequacy and sustainable.
• Use a single set of definition of adequacy across workplace and state pension policies, especially in defining under-savers and the protection they need.

Read the report here.

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