UK – The UK government must address "major deficiencies" in the pension system and should seek to improve the "inadequate" outcomes of defined contribution (DC) funds, a report by the House of Lords has said.

According to the more than 100-page report examining the challenges of an ageing UK society, both employers and the government should seek to end the "cliff-edge" approach to retirement, allowing employees to "wind down work and take up pensions flexibly".

The Lords' committee on public service and demographic change welcomed the recently announced state pension reform and introduction of auto-enrolment, bit said more still needed to be done.

"While the poorest will be protected at a basic level by state provision, and the richest can afford to save enough in private schemes, there is a substantial gap for much of the rest of the population," it said.

The report, 'Ready for Ageing', noted that the risk and uncertainty of outcome for those saving in DC funds posed a problem, and said they were therefore "inadequate" for many.

The committee also seemingly endorsed pension minister Steve Webb's defined ambition agenda by calling for greater certainty for those saving into DC funds and noted that the situation whereby investment risk was now borne by individuals – rather than investors or the state – might not be "politically or practically sustainable".

It urged the government and pensions industry to "tackle the lack of certainty in defined contribution pensions and address their serious defects", which would allow for scheme members to have a better understanding about the size of pensions offered through individual levels of saving.

It also praised the defined ambition agenda for moving focus away from defined benefit (DB) pension reform towards what it deemed a more "pressing" matter, namely how to ensure the DC market is functioning properly.

"More active government intervention in this market is likely to be necessary to secure better outcomes for savers," it continued.

"Unless such an innovation comes about, there is a risk of fundamental and permanent damage to [the National Employment Savings Trust] and the settlement laid out by the Turner Commission," it said, referencing the commission that suggested the introduction of auto-enrolment a decade ago. "We urge the government to make their plans concrete as soon as possible."

The report was critical of the minimum contribution threshold imposed as part of auto-enrolment, saying it would not address the issue of under-saving.

"The scale of pension saving encouraged by this scheme – eventually 8% of an individual's earnings – will still result in a pension significantly below many people's expectations unless people save considerably more in addition."

Both greater certainty of outcome and increased contributions are issues being examined by the Department for Work & Pensions.

Webb has spoken of his desire to see defined ambition schemes established and discussed the introduction of a protection fund for DC savers as a way to guarantee certainty of payment.

The DWP has also examined the viability of auto-escalation measures to increase contribution levels without amending the 8% minimum threshold mandated by law.

The committee also said there was a strong case for reviewing incentives that encouraged either early retirement, or retirement at a specific age, arguing it should be "beneficial" to defer the point at which state and private pensions are drawn.

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