Calls have been made for changes to pensions that would allow individuals to access their funds before reaching retirement age. The Resolution Foundation has emphasised the need for a more flexible approach to workplace pensions saving over the next decade, particularly focusing on assisting low earners in building a financial safety net that can be utilised before retirement. While the automatic enrolment into workplace pensions in the past decade has increased pension coverage and savings, the Foundation argues that a tailored approach is required to address the distinct challenges faced by low, middle and higher earners.
The report suggests that default contribution rates into auto-enrolment schemes should gradually rise from 8% to 10% in the coming years. Additionally, it recommends the establishment of an easy-access “sidecar” savings account, where any balance exceeding £1,000 would then be channelled into an individual’s pension fund. The aim is to encourage a shift in perspective, viewing pensions as part of a broader savings strategy that balances retirement planning with precautionary saving, rather than treating them as separate entities.
Highlighting the current financial landscape, the Foundation notes that one in three working-age adults reside in households with accessible savings of less than £1,000. The proposed changes seek to enable low earners to bolster their emergency funds while maintaining regular pension contributions, as well as providing avenues for higher earners to further enhance their retirement savings. The Foundation’s economists stress the importance of addressing the savings disparities among various income groups and advocating for a comprehensive approach to pensions saving that accommodates diverse financial circumstances.
The funding for the Foundation’s report was provided by People’s Partnership, the provider of the People’s Pension scheme. Patrick Heath-Lay, the chief executive of People’s Partnership, underscores the critical role of pension contributions in determining individuals’ quality of life during retirement. The Department for Work and Pensions has acknowledged the ongoing review of pensions policies, aiming to build upon the success of automatic enrolment while enhancing investment opportunities and pension growth for over 15 million savers.
In conclusion, the call for reforming pensions to offer increased flexibility and support for different income brackets reflects a growing recognition of the need to adapt retirement savings mechanisms to the evolving financial landscape. As discussions surrounding the future of pensions unfold, the focus remains on striking a balance between securing retirement income and fostering accessible, sustainable savings habits across all segments of the workforce.