The Pensions Commission should concentrate on improving outcomes for self-employed and low-paid workers, and closing the gender gap, industry experts have agreed.
Panellists at a conference hosted this week by the Social Market Foundation discussed the limitations of the relaunched Pensions Commission in addressing the fairness of the UK’s retirement funding system.
Suzy Morrissey, deputy director at the Pensions Policy Institute and head of the government-commissioned review of the state pension age, said it was unclear how much the pension system reinforced existing inequalities and whether it was capable of addressing these issues.
She added: “We will wander quite quickly into larger issues such as housing or any number of larger issues. When we’re talking about pensions… we obviously start to get into these other areas. But of course, there are some boundaries within which we have to operate.”
The commission has been tasked with exploring ways to address inequalities in the pension system and improving retirement income adequacy.
Addressing the gender and racial pensions gaps
Will Sandbrook, managing director at Nest Insight, told the conference that product design could explain why the auto-enrolment opt-out rate was higher among minority communities in the UK.
When relaunching the Pensions Commission in July, the government published data highlighting racial differences when it comes to retirement savings: only a quarter of those from a Pakistani or Bangladeshi background are saving.
Separately, a government-backed study of pension savings and income carried out between 2020 and 2022 found a 48% gender pensions gap in private pension savings between women and men. It reported that a woman currently approaching retirement can expect a private pension income worth over £5,000 less than a man. This equates to just over £100 per week for a woman compared to just over £200 a week for a man.
The joint ownership of pensions was mooted, although Sandbrook said that even if a way could be found to share pensions among married couples or spouses, “fundamentally, income inequality will find its way into a private connection saving system, because it’s all about smoothing your own income and consumption”.
Helping self-employed and low earners save for retirement
John Asthana Gibson, researcher at the Social Market Foundation, agreed with Sandbrook over the need for an auto-enrolment pensions mechanism or product for self-employed workers to help raise contributions.
Sandbrook said any pension system would also need to help solve the issue of short-term financial resilience in lower-paid and part-time workers.
Changes to the structure of national insurance contributions and the self-assessment tax system should also be considered, he said.
Gibson added: “Certain behaviours in our system are worthy of qualifying as income for the purposes of national insurance approval, including caring for children of a certain age.
“There isn’t actually anything stopping us from creating financial contributions into the private pension system for the same set of behaviours. We just have to find money from somewhere.”
“We can’t realistically ask people on really low incomes to just save loads and loads of their money for 40 years from now.”
John Asthana Gibson, Social Market Foundation
Sandbrook said: “Traditionally, employer contributions just follow income. Another way would be to simply match pound-for-pound the first £500 of contributions instead of choosing expenditure income. That could move around monthly to reflect different labour market patterns.”
Another issue the panel agreed on was how much low-paid workers should be contributing towards their pension.
Sandbrook said: “If someone is earning £10,001 pounds a year, I don’t think that’s the person who should be setting aside more of their take-home pay right now into a pension.
Gibson added: “We can’t realistically ask people on really low incomes to just save loads and loads of their money for 40 years from now. If you want to increase [low-paid workers’] retirement income, I think you probably need to find some money from somewhere else.”
The panel also discussed “sidecar” savings initiatives, such as that piloted by Nest Insight over the past few years. These could be structured to allow workers to dip into their pension while still contributing, to see them through financial emergencies. This would be allowed so long as they have already built up a minimum pension fund, which would remain ringfenced until they retire.
