A report issued by the pair today reveals that despite a number of positive policy initiatives, it is doubtful that many future retirees will be able to ensure adequate retirement incomes, due to a combination of various economic and demographic factors.

Economic concerns:

• The UK’s economic recovery is largely fuelled by increasing household expenditure, but without rising income levels to match it, indebtedness will rise – and savings will fall
• The ratio of household debt to income is forecasted to exceed its pre-financial crisis peak in 2018, while the savings ratio is predicted to fall to its lowest level since 1997
• Average annual bond and equity returns are expected to be at least 50 per cent smaller than any point in the 30 years prior to 2008

Demographic concerns;

• On average, in 2012, women needed to fund 26 years in retirement; men 21 years
• Average retirement periods have increased significantly over the last three decades; by more than one third for men, and just under one fifth for women
• Even with planned changes to the State Pension age, people will still require sufficient savings to fund up to a third of their adult lives in retirement
• Hopes for an adequate retirement income hinge on people saving enough in defined contribution (DC) schemes; currently employees contribute an average of 2.9 per cent of their salary to a DC
• Projections suggest that unless contributions to DC schemes rise, less than half of median earners will be able secure an adequate retirement income through Auto-Enrolment

Given this milieu, ILC-UK and Prudential believe the establishment of a new Pensions Commission, charged with ensuring savers secure income adequacy in retirement, to be essential. The Commission would take a “holistic, non-partisan view of pensions policy” and “make well-informed decisions on the basis of strong evidence and consensus”.

The Commission, the pair believe, should be created soon after the next general election, and “carry sufficient weight politically…that its findings and proposals are taken seriously.”

“A new Pensions Commission is urgently needed in order to look at the problem of retirement income adequacy in a holistic way,” said Ben Franklin, senior research fellow at ILC-UK. “The core goal of ensuring adequate retirement incomes based on the principle of consensus should be at the heart of a new, coherent pensions policy in the UK.”

Tim Fassam, head of public affairs at Prudential noted that while “recent changes have provided a wider range of choices in retirement,” most savers “are still not saving enough to provide the retirement they desire”. “Pension decisions are long-term,” he continued, “so stability and predictability are important in encouraging people to save more.”