UK ‘walking into pension crisis’, warns incoming PLSA chair

The UK is “walking into a pension crisis” due to the inadequate amount of money going into long-term savings, incoming Pensions and Lifetime Savings Association (PLSA) chair, Emma Douglas, has warned.

As reported by our sister publication, Pensions Age, in her first speech as PLSA chair, Douglas focused on the savings gap, auto-enrolment reform and pensions adequacy, and the affordability of people saving more for retirement.

She acknowledged that pension saving was not going to be top of people’s agendas due to the current financial hardship many people are facing and the focus on recovering from the pandemic.

“The PLSA’s mission statement is to help everyone get a better income in retirement and we all know that the amount you put in is the biggest determinant of what you’ll get at retirement,” Douglas stated.

“The savings gap is a big societal problem, the current amount of money going into long-term savings, even with auto-enrolment at 8 per cent, is inadequate for most and we are walking into a pension crisis.”

She urged PLSA members to hold the government to its promise of removing the auto-enrolment lower earnings limit and reducing the minimum age to 18 in the mid-2020s.

“All of this will cost money,” Douglas continued. “More people saving will mean that employers, the government and individuals need to put more money into long-term savings.

“There is definitely an issue around affordability, but people will still need an income in retirement.”

Douglas also reiterated the PLSA’s support for gradually increasing the minimum auto-enrolment contribution to 12 per cent, split 50/50 between employers and workers, by 2030.

“Covid may stretch this timeline, but for many of those earning over £20,000 this is the level at which they need to save in order to have a chance of getting closer to the ‘moderate’ levels of our Retirement Living Standards,” she noted.

“Again, there is the cost to consider, especially for employers, together with the important point that 12 per cent may be over-saving for those on lower incomes who are likely to remain on low incomes for their working life.

“So, alongside the 12 per cent, we also see the need for some form of opt-down mechanism, or reduced rate for lower earners, or sidecar savings.”

Touching on The Pensions Regulator’s (TPR) upcoming defined benefit (DB) Funding Code, Douglas urged the regulator to adopt differing approaches for open and closed DB schemes, and to ensure that there was genuine flexibility under the bespoke option.

“Achieving pensions adequacy is my main rallying cry as the new chair of PLSA,” she announced.

“Encouragingly there is already a strong level of consensus across the industry about the need to widen the auto-enrolment remit, to support DB schemes and support for increasing contribution rates, where it is affordable.

“We need enough money going into our pension funds so that they can continue to provide security for individuals when they stop work and so help everyone achieve a better income in retirement.”

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