Addressing savings adequacy is vital as many people are undersaving for later life, the chief executive of the Financial Conduct Authority, Nikhil Rathi, has said.

Most people are not saving enough or engaging early enough with pension investments, Rathi said in a speech at the JP Morgan Pensions and Savings Symposium on Wednesday.  

“Whatever the route to improving this, and this is challenging as we come through of a cost-of-living squeeze, addressing the adequacy of savings is vital,” he said.  

Rathi refrained from explicitly calling for higher employer contributions but pointed to other jurisdictions and the views of UK associations.

In Australia, employer contributions are at 11%, increasing to 12% in 2025.
Ireland's newly introduced auto-enrolment regime will see contributions total 14% after 10 years, with 6% each from employer and employee and 2% from the state.

This compares with 3% minimum employer contributions in the UK and an overall minimum of 8%, which Rathi argued was “still an affordability challenge for many businesses”.

He cited the Association of British Insurers and the Pensions and Lifetime Savings Association, which have both called for contributions to rise to 12% and to be split equally between employer and employee.
 

 

Rathi noted that the PLSA’s Retirement Living Standards, which have seen a rise in the income needed for different lifestyles, assume home ownership at all levels. However, half of first-time buyers now take out home loans with terms greater than 30 years – doubling over a decade – meaning many will not repay their mortgage until they are close to or over 70, he observed.

The watchdog’s CEO also spoke about new pension designs, such as collective defined contribution and the pension ‘pot for life’.   

Both of these structural reforms “would need a clear delivery roadmap stretching over a decade. And once that map has been agreed, we will need a period of stability to focus on execution,” he said.  

The proposed lifetime pension “could add simplicity but would also be a profound change to the system and the role of employers”, he warned. 
 

 

CDC is seen by some as a way of rebuilding pensions as an income for life, he noted. He added: “However, CDCs are also complex, and both the scheme and any communication to savers must be managed carefully.” 
 

 

Rathi also spoke about the risk to pension incomes from scams, and said pensions dashboards could lead to a further rise.   

“We are alert to the fact that when pension dashboards go live, risks of scams may increase, and we want to work with you on measures to mitigate those risks,” he told the audience. 
 

Do you expect the next government to tackle the pensions adequacy question?