According to The Pensions and Lifetime Savings Association’s (PLSA) Five Steps to Better Pensions: Time for a New Consensus report, about half of savers risk missing retirement targets set by the Pensions Commission in 2005.

This is true for people on average earnings, as well as for under-pensioned groups, such as people – often women – who take time out of work to care for others, and specific elements of the workforce such as the self-employed, gig-economy workers and people with part-time jobs.

Worryingly, around one in five households are at risk of failing to even achieve a ‘minimum’ standard of living in retirement.

The PLSA has identified five key elements of reform are needed to future proof the pensions system. These are:

• The creation of clear national objectives for the UK pension system
• Reform of the state pension so everyone achieves the ‘minimum retirement living standard’
• Reform of auto-enrolment so more people are included, such as younger people, multiple job holders and gig economy workers, with contributions at a higher level.
• Policies to help ‘under-pensioned’ groups such as women, gig economy workers, self-employed people, and others.
• Industry initiatives to help people engage with pensions, receive higher contributions, or get better pension outcomes.

PLSA calculations show that if each of the recommended reforms were implemented, a median earner would see their pension income increase from about £15,000 a year to about £19,000 – an increase of almost £4,000 or 25%.

‘A generational challenge’

Nigel Peaple, PLSA director of policy and advocacy, said: “Today, the PLSA is publishing proposals for reform – Five Steps to Better Pensions – that will deliver meaningful improvement in the standard of living future retirees can expect.

“Given the current cost-of-living crisis, we are not proposing any increases in pension contributions during the next three years and, after that point, only very gradual increases over the following decade until a point in the early 2030s when most people will contribute 12% – split evenly between employers and employees.”

Tom Selby, AJ Bell head of retirement policy, said: “The first step of automatic enrolment was boosting the number of people saving something for retirement. On that measure alone the reforms have been hugely successful, with around 20 million people now saving in a pension scheme and opt-out rates low.

“Policymakers now face a generational challenge and one which will shape the financial futures of millions of people – how to increase the amount people save for the short, medium and long-term?

“This would be difficult enough during ‘normal’ economic times but is made even harder during a period of huge economic uncertainty, with inflation running wild and millions of households braced for further pain as mortgage costs spiral.”