Protecting pension savers – five years on from the pension freedoms: Saving for later life – Report Summary

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

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This is the final report of a three-part inquiry on Protecting Pension Savers, looking at who is not saving enough for an ‘adequate’ income in retirement and how to address this. We are keenly aware of the difficulty of raising these questions at a time when many people are struggling to meet their present needs. However, we also believe that not doing so risks a crisis in future, as many people find they will not have an adequate income in retirement only when it is too late to do anything about it.

Automatic enrolment, the policy which requires employers to auto-enrol workers into a workplace pension and make minimum contributions, was introduced in 2012, based on the recommendations of the Pensions Commission. It has been a success in increasing the proportion of eligible workers saving in a pension from 44% in 2012 to 86% in 2020. Participation rates among workers has been high, with only around one in ten opting out. However, ten years on, it is time to take stock of where we are and what the system is on course to achieve.

Are people saving enough?

There are three main challenges. These are the risks that: many are not saving enough for an ‘adequate’ income in retirement; there are people not within the scope of auto-enrolment due to low pay or because they are self-employed who would benefit from saving in a pension; and that decisions people take at and in retirement result in them not having a sustainable income that meets their needs throughout later life. We looked at the third of these issues in report on Accessing Pension Saving published in January, the other two were the subject of this inquiry.

Many newly auto-enrolled people make minimum contributions, not realising that this will not be enough to give them an adequate living standard in retirement. The Pensions Commission designed auto-enrolment to get median earners part of the way to its definition of retirement adequacy, with the expectation that they would make additional voluntary savings on top. However, largely they have not done so. Recent analysis by the Pensions Policy Institute for B&CE showed that only 39% of households and 37% of individuals are on track to hit the target replacement rates used by the Pensions Commission to benchmark adequacy. A group at particular risk, is people in their forties and older who do not have access to a defined benefit pension (a pension that pays benefits based on salary and length of service) and have had limited time to build up a pension through auto-enrolment.

Although there are two commonly-used measures of adequacy—the Pensions Commission’s target replacement rates and the Pension and Lifetime Association’s retirement living standards—there is no consensus on a single definition or on what outcomes the pensions system should be designed to achieve. Achieving a new consensus is essential to gaining support for reforms needed to address the problem. We are calling on the Government to set out its plans for this by March 2023.

The 2017 review of auto-enrolment

We support the former Pensions Minister’s continued commitment to introducing the recommendations of the 2017 auto-enrolment review by the mid-2020s. It is disappointing that five years on, we have seen no implementation plan or impact assessment. There is almost universal support for these recommendations, which would improve retirement outcomes for many part-time workers, disproportionately women, and for workers in the gig economy. The former Pensions Minister told us he had a two or three clause bill ready to make the necessary changes to legislation. We recommend the Government introduce the necessary legislation no later than the beginning of the next session of Parliament. It must also publish a timetable for consultation on implementation, taking account of cost pressures on employers and workers.

Minimum auto-enrolment contribution rates

Many witnesses told us that minimum contribution rates needed to increase above 8% (3% employer and 5% employee, including tax relief). We welcome the former Pensions Minister’s aspiration to work towards a 12% minimum contribution rate, as in Australia. There are good arguments for starting with an increase in employer contributions to 5%, level with employees. And any move to increase contributions should aim to increase pension saving for the right people at the right time. We welcome the fact that the Department for Work and Pensions (DWP) is doing research to understand the impact on low earners.

The middle of a cost of living crisis is not the time to ask people to pay more into their pension. However, if they are to do so in future, work to prepare the ground needs to start now to build consensus on the need for change. As a first step, the Government should say whether it expects it to be possible to increase minimum contributions in the foreseeable future and, if not, its plan for addressing the challenges set out in this report. There will of course be people who see limited gain from any increase in minimum contributions because they are a relatively short distance from retirement. The Government needs to say how it plans to address this challenge that many such people are not on course for an adequate retirement income.


The Government also needs to move forward with a plan to increase pension saving for self-employed people, which has declined since the mid-1990s and is now at 16%, compared to 88% of workers eligible for auto-enrolment. Two features of auto-enrolment have made it very effective for employees: the fact that people are defaulted in; and the employer contribution, which is an incentive to participate. These do not apply to self-employed people and efforts to encourage them to save in a pension voluntarily have not been effective. The former Pensions Minister agreed with many other witnesses we heard from, that an approach like auto-enrolment, where self-employed people are defaulted into pension saving, is needed. DWP told us it aimed to work with software developers and HMRC, after the introduction of Making Tax Digital (MTD), scheduled for April 2024, to see if this can be done. We were therefore disappointed to hear that HM Treasury has “no current plans” to introduce a facility for automatic enrolment into pensions as part of MTD delivery. We recommend that HM Treasury and DWP work together to: set a date to trial ways to default self-employed people into pension saving. They should also consult on the proposal to increase the main rate of National Insurance paid by the self-employed (Class 4) by 3%, with the option to have the increase paid into a pension if the self-employed personal also contributes 5% (including tax relief). Alongside that, the Government should consider how to promote pension saving to self-employed people.

Gig economy workers

We are concerned that many people working in the gig economy are missing out on their right to build up a pension through auto-enrolment because the company they work for classes them as self-employed. The Pensions Regulator (TPR) told us it faces considerable challenges in enforcement, with employers challenging its decisions at every stage and it having to meet a high evidential bar in tribunal cases. Although the Department for Business Energy and Industrial Strategy (BEIS) issued new guidance on employment status in July 2022, TPR expects these challenges to continue. We heard from Uber and the GMB that better enforcement arrangements are needed to ensure workers get their pension rights. We repeat the recommendation made in two previous reports that the Government should bring forward its Employment Bill for parliamentary scrutiny as soon as possible, to increase the legal protection available to people in low-paid work and the gig economy. In the meantime, DWP should work with TPR to estimate the extent of the problem and what additional resources or powers TPR needs to be able to ensure employers in the sector comply with their auto-enrolment duties.

The gender pension gap

There is no consensus on how the gender pension gap should be defined. Reports from stakeholders suggest little sustained progress is being made to reduce it. We recommend that DWP work with colleagues across government and other stakeholders to agree a definition and a target to reduce it. There is consensus that, in DWP’s words, the gender pension gap is “mainly caused by inequality in the labour market, including differences in working patterns and earnings.” An effective plan to reduce it, needs to address this head on. We heard proposals, for a ‘carer’s credit’ to auto-enrolment, for example. In the short-term, we recommend the Government look at ways to make existing policies work better for lower-paid and part-time workers. This should include: a review of the £10,000 earnings trigger for auto-enrolment; ensuring non-taxpayers benefit from tax relief, regardless of the type of pension arrangement they are saving in; ensuring people caring for children get credits towards their State Pension; and increasing the incidence of pension sharing on divorce. DWP and HM Treasury should continue to explore ways to bring multiple jobholders within the scope of auto-enrolment, for example, by amending the PAYE coding notice system to add an instruction to auto-enrol.


We also call on the Government to do more to ensure people have the support they need in making decisions for retirement, including taking steps to raise awareness of the free impartial pensions guidance on offer from MoneyHelper Pensions and addressing the barriers to pension schemes and employers providing more guidance and support to savers.

The way forward

To conclude, we heard that there is a consensus that auto-enrolment has been successful in increasing participation in workplace pension saving but also that it is time to address the challenges which mean many people are unaware they are not saving enough for an adequate income in retirement. There is a need to forge a consensus on the future direction, including employers, trade unions, the pensions industry and the wider public. This will require a cross-government commitment to develop a plan and build this consensus. In some areas—such as how to increase self-employed pension saving, ensure any future increase in contributions is well-targeted, and increase the incidence of pension sharing on divorce—a better evidence base is needed to understand the issues. We recommend that the Government set up a new office tasked with: building and maintaining an evidence base; explaining the trade-offs involved in different policies; reporting regularly to Parliament on progress in meeting objectives, in particular relating to retirement adequacy and the gender pension gap.