Pensions Commission report ‘paves the way’ for higher contributions in the 2030s and tighter rules around decumulation

The first report of the new Pensions Commission has been published this morning, running to 190 pages with a further 126 pages in a supplementary evidence volume.

The report seeks to provide an ‘evidence base’ on which future policy will be developed. The final report is expected in early 2027.

The wide-ranging report covers:

• Measurement – what does saving ‘enough’ mean? Do existing measures work?
• Coverage – who is not saving at all? The self-employed are marked out as a particular group where pension savings levels are very low;
• Contributions – the report is clear that contribution levels are not enough, but floats a mixture of higher contribution rates and changes to the band of ‘qualifying earnings’, potentially lowering the starting level and increasing the upper level;
• Investment returns – the report is concerned about the variation in returns achieved by different pension providers, and particularly the returns delivered by the poorest performers;
• Decumulation – the report is critical of the pension freedoms reforms, which it says have left individuals facing complex choices; particular issues include:
  • Too many people accessing pensions as soon as they can, at 55
  • Too many people ‘maxing out’ on tax free lump sums
  • High levels of charges in decumulation where there is no cap
  • Approaches which rely on members to ‘engage’ – the report says there need to be ‘genuine defaults’ that work for the disengaged

The report is also positive about the state pension, but concerned that the ‘triple lock’ mechanism creates unpredictable increases.

Commenting, Steve Webb, partner at LCP said:

“Although this is designed to be an evidence volume, it is already possible to see the outlines of some potential policy recommendations. The report makes a lot of the way in which previous increases in contributions, both in the UK and Australia, have happened gradually and with many years for people to prepare. This is a strong signal of higher contribution rates in the 2030s, possibly on a wider band of earnings. The report is particularly concerned about the decumulation phase where it is concerned about people accessing pensions early and in full, or maxing out on tax free cash. Although pension freedoms will not be fully reversed, we can expect to see tighter rules, with a mix of later access to pensions and strong defaults steering people towards regular income rather than lump sum withdrawals. Overall, the report clearly paves the way for higher contributions and tighter rules around decumulation.”