Is AAF fit for today? What should Trustees be considering?
Is AAF fit for today? What should Trustees be considering? AAF 01/20 reports began appearing
Pensions – Adequate or Not?
In 2004, the Pensions Commission established a set of gross income replacement rates that it deemed sufficient to smooth living standards between working life and retirement. The government’s 2026 pension adequacy review has reignited a long-running debate: are UK pensions delivering enough income for a comfortable retirement? Pensions UK has helped provide some benchmarks around defining what this means with its three tiers of retirement income – minimum, moderate and comfortable.
The Pensions Commission recognises that the pension adequacy issue is not just about saving for retirement. Key influences on pensions adequacy now includes housing status (rent or own), and a longer life – potentially spent with health issues. Part of the assumed solution continues to be an increase in pension contributions.
Whilst this will no doubt improve the retirement outcomes for some, and is a key part of any government strategy, is it a realistic aim for those in most need (low income, insecure and interrupted employment status)? Increased savings for this group not only puts pressure on their current standard of living, but it may also be that they do not benefit in retirement. Under the current system, means tested benefits like housing and pension credit may be reduced.
This in itself could damage trust with the pension system and lead to far wider disengagement.
The shift of pensions provision within the private sector has increased risk to individuals, and could be argued to have reduced risk for institutions and companies. Within all the discussions around adequacy solutions, we need to address the question as an industry, do we really believe that those earning low wages with low income security have the resources to not only be able to take on this risk, but also increase their pension contributions?
Should we be focusing on ‘Retirement Adequacy’ with a broader remit. What does Retirement Adequacy look like? And what does retirement mean – do we need to reframe it?
One size typically does not fit all; this is the same for pensions and retirement. We need more flexibility in the savings journey, supported by improved housing and healthcare as well as changing society’s expectations of retirement and what it might look like. The aged well can continue to contribute to society and maybe they should for the greater good.
We need to be honest about what can be supported by the individual and much more creative as an industry and as a society, if we want to make a real difference to pension adequacy. At Pi Partnership, it is central to beliefs that a well-governed pensions industry is a fundamental pillar of society and we are proud to continue to be an independent voice.
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