The UK needs a single, coherent framework for measuring retirement adequacy if policymakers are to determine whether pension reforms are actually improving outcomes for savers, according to Pensions UK.

In a blog, Pensions UK content manager, Matthew Williams, argued that adequacy had moved to the top of the pensions agenda, including through the work of the re-formed Pensions Commission, but that the absence of a clear benchmark had limited the effectiveness of the current system and made joined-up policy more difficult.

Williams said future success should not be judged simply by higher contribution rates or larger pension pots, but by whether more people are on track to achieve a decent retirement income.

With this in mind, he proposed a hybrid adequacy framework that combined a minimum income floor with target replacement rates for middle- and higher-income earners.

Under this approach, everyone should aim to reach a 'Minimum Income Threshold', which Pensions UK estimated is currently around 32 per cent of median earnings.

Above that level, adequacy would be assessed using the Resolution Foundation’s target replacement rates, which measure the proportion of pre-retirement income replaced in retirement.

“At the most basic level, we should aim for everyone to reach the Minimum Income Threshold, likely through the state pension, and design policies, like automatic enrolment, that enable people to get as close as possible to their TRRs and maintain their living standards,” Williams explained.

He added that the state pension should be explicitly targeted at the Minimum Income Threshold.

After that, Pensions UK suggested the triple lock should be replaced by a new “Living Standards Safeguard”.

The proposed mechanism would use a “smoothed earnings link” approach put forward by the Institute for Fiscal Studies and would be reviewed periodically to ensure the state pension continued to meet the minimum adequacy benchmark.

Williams claimed this would allow the state pension to keep pace with earnings while preventing it from falling in real terms.

Pensions UK also proposed establishing a new independent 'National Council for Retirement Adequacy' to oversee the framework.

The council would initially set the Minimum Income Threshold using evidence including the Retirement Living Standards, pensioner poverty indicators and wider living standards data.

It would then reconvene every five years to assess whether the threshold remained appropriate and recommend any changes.

The body could also advise on wider policy areas, including state pension adequacy and changes to automatic enrolment.

Williams concluded: “Over the next decade, the success of pensions adequacy reforms should be judged not just on participation rates or assets accumulated, but on whether people are on track for a decent retirement.”

He added that defining clear adequacy measures would make it easier to assess whether reforms were succeeding and whether further policy intervention was needed.

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