Towards a ‘balanced’ approach to pensions reform? Individuals, the state and employers in the restructuring of post-retirement income in the UK

Abstract

This paper tests the feasibility of individual saving as a solution to the pensions crisis and, heeding the Pensions Commission’s call for a ‘balanced’ approach to the UK’s problems, investigates the effect on individual savings rates of changes in state and occupational provision: ie the re-introduction of the Basic State Pension earnings link and a return to an average pension contribution of 8% for those employers currently providing occupational pensions. The paper is based on a series of micro-simulations of the pension entitlements of a selection of illustrative ‘risk biographies’, which are founded upon a critique of similar calculations undertaken by the DWP and Pensions Commission.The paper shows that:1. The introduction of typical risks (eg care responsibilities, unemployment, early retirement) to individual life biographies, and the use of an adequacy standard based on relative poverty, significantly increases the rate of saving required to secure an adequate income in retirement in comparison with the savings rates outlined by the DWP and Pensions Commission.2. A relatively small change in the current policies of the state and some employers has the potential to make the prospect of an increased reliance on individual savings a more feasible prospect.3. Greater intervention by the state and/or employers would nevertheless be required to cater for those with greater periods out of the workforce and/or working in sectors uncovered by occupational provision