Auto enrolment should be extended and made more flexible while employers should offer short-term savings schemes to workers, according to a new report.

The Pensions Management Institute and Schroders say their proposals will improve financial resilience in the UK and support better pensions outcomes.

The report has been published today as part of Schroders' and the PMI’s flagship Lifetime Savings Initiative launched in March. It identified three of the most pressing challenges affecting people’s finances: 

• The difficulty of building up a ‘rainy day’ savings buffer resulting in generally poor financial resilience
• The increasing challenge of owning your first home
• Inadequate long-term savings for retirement

To help deal with these problems the LSI has recommended the creation of a National Short-Term Savings Plan (NSSP) alongside a new National Lifetime Savings Plan (NLSP).

• The NSSP would support the creation of ‘rainy day’ funds, encouraging employers to offer employees the ability to make deductions from their net pay, which would be invested in a short-term savings product. It could transform the financial resilience of millions of people, according to the report.
• The NLSP would extend the existing automatic enrolment pensions framework to make it more flexible and to incentivise employees to save even more. It would allow savers to draw on their pension savings early, to contribute to the deposit to buy their first home or to help address serious financial problems. Withdrawals would only be allowed on retirement savings from contributions in excess of the value of the statutory minimum – currently 8% of qualifying earnings.

Ruston Smith, chair, Pensions Management Institute, said: “The majority of the money that most people rely on to make ends meet in retirement is from their non-retirement savings. That’s why it is so important to think more holistically about lifetime savings leading up to and in retirement.

“Building short term financial resilience through a simple, accessible and trusted ‘rainy day’ savings fund, with the ability to allow more people to buy their first home, or get their finances back on track, whilst also contributing to long term savings for retirement is at the heart of this proposal – and strengthens financial resilience.

“All these measures contribute to an individual’s lifetime savings which have become so critical in retirement. This proposal accelerates and evolves the use of the UK’s automatic enrolment framework to meet the needs of modern society whilst also addressing the lifetime savings challenge.”

James Barham, executive chairman, Schroders Solutions, said: “Pension saving needs to change and it is in this context that we warmly welcome the UK Government’s wide-ranging pensions review. But it is also becoming clearer that for many people, looking after themselves and their loved ones through their working life, and into retirement, is about much more than pensions.

“Even when you take pensions freedoms into account, the UK’s long-term savings system is unusually inflexible. We think this provides an excellent opportunity to develop a model that catapults us to a framework that is right for the UK."

Nausicaa Delfas, The Pension Regulator’s chief executive, said: "Following the success of automatic enrolment, and with the government’s two-part pensions review and Bill, we now have a unique opportunity to look at how we can make the pensions system work for everyone. This timely report adds to the debate and reinforces the need to make sure all savers get value for money from the pensions system.”

Steve Webb, partner at Pension Consultants LCP and former Pensions Minister said: “The start of a new Government is the perfect time to look at the big picture when it comes to pensions and savings. Individuals need a mix of short-term and long-term savings, including savings vehicles which will help with house purchase.  

“It is vital that the Government’s pensions review looks broadly across the savings landscape and looks at ideas such as those generated by the Lifetime Savings Initiative. The goal must be savings policy framed around the changing needs of individuals over their lifetimes, rather than purely about existing individual financial products.”