Pensions system 'needs reform' to tackle savings shortfall
The wider pensions system needs to be reformed and simplified to tackle a "pensions savings shortfall", according to new research from PwC.
PwC found that someone starting work today aged 22 will need to save 15 per cent of their annual salary towards their pension to reach a desired retirement income. Failing to increase their contribution levels could leave someone with a £4,000 per year shortfall between their pension savings and desired retirement income.
The Big Four firm's survey of 1,200 working adults found that a lack of understanding about the pensions system is one of the biggest barriers to saving.
PwC said that reforming pensions tax alone, for example introducing a single rate of tax relief on pension contributions, will not "dramatically impact" people's motivation to save more towards their retirement.
The firm said that the focus should instead be on improving saver awareness and financial education about planning for retirement, as well as increasing auto-enrolment contribution levels.
The findings support a recent call by ICAS for the Government to improve the savings culture for pensions, by making it easier for people to predict their retirement income and encourage greater savings.
Philip Smith, head of defined contribution pensions at PwC, said: "We see various routes to simplifying the current pensions system so that it acts as a much-needed savings incentive. One option is to introduce a single rate of tax relief on pension contributions. This may also cause less disruption to pensions, as the system is being tweaked rather than completely overhauled.
"Another option is a system where people are taxed on the money they put into their pension, but they receive an up-front contribution from the Government and their pension would be tax-free in retirement."
"Efforts need to focus on improving saver awareness, increasing auto-enrolment contribution levels and improving financial education so people can plan for the retirement they hope for. The Financial Advice Market Review is an opportunity to make quality and affordable advice available for all and we believe technology should be at the core of the solution."
Read more about the ICAS Manifesto, which called for the Government to create a pensions system that will endure for the long term.