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The minister should abandon the “triple lock” pensions as part of the broader overhaul required to prevent millions of civilian workers from experiencing a sharp decline in living standards upon retirement, a new study has found.
Approximately 39% of corporate workers face the edge of a financial cliff where they retired under the current arrangement, and were found in a two-and-a-half year study between the Institute for Financial Studies and the Asset Manager, Aberdeen’s Financial Equity Charity.
The study predicts that half of medium-term and high-income private sector employees are not on track to reach the “target exchange rate.” This is a benchmark to avoid major falls in your standard of living.
Approximately 13% face incomes lower than the “minimum standards” set by the Pension and Lifetime Savings Association.
The lack of pension savings among self-employed people means that two-thirds are predicted to fall below the minimum standard, the study found.
“Without decisive action, many of today’s working-age population face lower standard of living and financial insecurity throughout retirement,” said Paul Johnson, co-director of the pension review conducted by IFS.
To make state pension payments more predictable and affordable over the long term, think tanks recommend defeating “triple rock” and selecting a new target level as part of the current average revenues of around 30% of the economy, growing at least with inflation.
Keir Starmer’s Labor Government ir pledges to protect the Triple Rock introduced by the Union Government in 2010, ensuring that state pensions increase annually, with rising consumer prices, average revenue growth, or 2.5%, whichever is the highest, whichever is higher.
The IFS intervention will be added to a chorus of voices calling for the end of rock, including first pension minister Baroness Ros Altmann. Its abolition was even advocated by current pension minister Torsten Bell in his previous role in leading the Solution Foundation think tank.
The Minister is preparing to begin a review of the adequacy of the pension. The adequacy of pensions is expected to automatically pay state pensions, workers pay pensions automatically, and self-employed people’s lack of retirement savings.
The IFS and the ABRDN Financial Fiarness Trust have recommended four key areas of reform to improve the outcome of retirement, including mandatory pension contributions from employers.
Johnson said the recommendation gave the government a “clear and affordable roadmap” to help workers save more in an affordable way, strengthen state pensions and enable individuals to make the most of their savings through retirement.
The report recommended that we terminate practices where employers’ pension contributions must only be made if employees also contribute. Instead, all staff ages 16 to 74 must receive employer contributions worth at least 3% of their total salary.
It also suggested that the minimum default total pension contribution contribution for those above average revenue would be increased to boost private pension savings while protecting take-away pay for those with low revenue.
Under current auto-registration rules, workers over the age of 22 who earn more than £10,000 a year pay at least 8% of the revenues eligible for pensions, of which at least 3% comes from their employers.
This review also finds that 80% of self-employed workers are not saving for their pensions and recommends consolidating pension contributions to self-assessed tax returns to encourage savings.
These proposals could generate private pension savings of £1.1 billion per year, calculated by IFS.
IFS also set out a plan to improve targeted financial support to alleviate increased pension poverty through universal credit and housing benefits, but ensure that state pensions are never tested by means.
Helping to manage defined contribution pension pots on retirement was also a “huge and extremely difficult” issue where we would work to integrate small pots and ensure that people have the right income options presented in an accessible way.
“Annuities require long-term planning and ideally require broad consensus,” said David Gauke, former Labor and Pensions Secretary of IFS’ Pension Review and chairman of the Steering Group. “The proposed proposal maintains a critical balance between the state, employers and workers.”
