Pensions UK has called for the development of a national framework to measure retirement adequacy that would be built around a minimum income threshold and target replacement rates.

In response to a consultation following the Pensions Commission’s interim report, the association proposed the new framework to support more people with getting a better income in retirement.

The Government would be able to use the framework to assess whether the pensions system is helping people save enough for an adequate standard of living in retirement.

Pensions UK said it supported the commission’s call for a hybrid framework for measuring and setting retirement adequacy.

Its proposed approach combined a minimum level of income that everyone should reach based around the Retirement Living Standards, and a set of target replacement rates to ensure people with middle and higher incomes can achieve a level of income consistent with their pre-retirement living standards.

The association added that an independent National Council for Retirement Adequacy should be established to review the minimum adequacy threshold and wider pensions system every five years.

Under the proposals, this council would determine the level of the minimum income threshold, which Pensions UK expected to be around 32% of median earnings.

Once a minimum income threshold has been reached, Pensions UK proposed a new ‘Living Standards Safeguard’ to replace the state pension triple lock, which it said would offer a more stable, transparent and fiscally sustainable state pension policy.

The association also called for minimum auto-enrolment pension contributions to be increased to 12% by 2035 at the latest, split evenly between employers and employees, as well as further action to get more self-employed people saving into a pension.

“Today Pensions UK is calling for a clear national framework for retirement adequacy, with a minimum income threshold that gives policymakers, employers and savers a shared goal to work towards,” commented Pensions UK executive director of policy and advocacy, Zoe Alexander.

“The state pension has a central role to play in protecting living standards and Government must provide clarity about how its value will be decided on over the longer term.

“More broadly, reform of the automatic enrolment system is now urgent. Contribution rates should rise gradually to 12% by 2035.

“Other system reforms should be advised on by a National Council for Retirement Adequacy, taking into account broader economic circumstances including cost of living pressures.

“The pensions industry is focused on maximising the value of every pound invested by savers, employers and the Government. But we cannot deliver retirement adequacy without system change to increase saving rates.

"Working together with Government, we see huge potential to deliver the economic and social benefits that will come from supporting the next generation of retirees to achieve the living standards they expect."

---