Pensions UK has called for a national framework to measure retirement adequacy and an independent body to review both the adequacy threshold and wider pensions system every five years, as part of a package of reforms.

In a new report, The Better Pensions Dividend, Pensions UK suggested that under-saving poses risks to retirement adequacy, economic growth and public finances, and called for a broader approach to pensions reform beyond discussion of minimum contribution levels. It argued that pension reform should form part of the UK's wider economic strategy.

To support reform, Pensions UK proposed a national framework for measuring retirement adequacy, based on a minimum income threshold and target replacement rates, and an independent National Council for Retirement Adequacy to review the adequacy threshold and wider system every five years.

It also called for a clear goal for the state pension and the introduction of a 'living standards safeguard' to maintain it once it has been reached, plus an increase in automatic enrolment contributions to 12 per cent by 2035.

The report recommended that reforms should be phased to recognise cost pressures on employers and savers.

It also asked HMRC to consider how the tax system could be used to encourage retirement saving for the self-employed, alongside trials of digital tools and platforms.

As part of its analysis, the report highlighted modelling by Oxford Economics, commissioned by Royal London, suggesting that higher pension saving could support medium- and long-term economic growth by increasing investment capital.

It also cited analysis that increasing automatic enrolment contributions to 12 per cent from the first pound of earnings could generate an additional £17bn a year in pension contributions, while broader automatic enrolment reforms could contribute £5bn to UK investment over a decade.

The modelling recognised that while higher contributions involve short-term trade-offs, including pressure on disposable incomes and employment costs, these effects are temporary.

The report also explored how reform could deliver benefits to retirement adequacy and support more sustainable public finances, suggesting that replacing the triple lock with
a 'living standards safeguard' once the state pension reaches an adequate level could save around £11bn a year by 2050.

The report warned that delaying reform would lead to lower retirement incomes and reduced investment, arguing that the cost of inaction would outweigh the cost of reform.

“Pension reforms are not only necessary; they are urgent,” stated Pensions UK chief policy officer, Zoe Alexander.

“Better pensions can deliver a wider dividend – stronger household resilience, improved retirement incomes, larger pools of investment capital, stronger growth and reduced long-term pressure on the public finances.”

She added that while the choices ahead will not be easy, “the cost of inaction would be greater”, citing lower retirement incomes, wider inequalities, weaker confidence in pension saving and growing pressure on future governments to fill the gap.

“Through the work of the second Pensions Commission, the UK has a critical opportunity to build a more sustainable and durable pensions settlement. Well-designed, phased reforms can deliver lasting gains for individuals, the economy and the public finances, even where the short-term context is challenging,” Alexander concluded.

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