The two most pressing problems in the nascent defined contribution pensions arena are the inadequacy of pension contributions and a dysfunctional ‘at retirement’ market. By the end of the next decade, millions may have little more than an inadequate state pension to live on. 

A looming retirement shortfall for people in their 40s and 50s is only ten years’ away while many 60-year-olds are floundering now. Indeed, the hastily introduced Freedom and Choice reforms in 2015 have left consumers ill-equipped to make fiendishly difficult choices today.

Young people are at risk from the number of jobs they will hold down in their lifetime, accruing dozens of pots, but with the right guidance they can get on track by the time they retire. The 40 and 50 something’s may have missed the boat – too young to benefit from good final salary pension schemes and too old to make the most from auto -enrolment introduced in 2012.

Auto-enrolment pension contributions from both employers and their staff must rise as a matter of urgency. For a start, employers’ legal auto enrolment contributions should at least match their workers’ contributions with a 5% pension contribution from the employer and 5% from the employee. 

Eventually, joint AE contributions may need to double to 16%. At present the legal minimum is 8% of which only 3% comes from the employer. The next generation could face the unpleasant Hobson’s choice of working until they drop or facing a life of penury in retirement without change today.

To read more in the full feature from the Financial Services Faculty, click here: Pensions in crisis | ICAEW