More than half of households in the UK aren’t saving enough to maintain their work life living standard in retirement, finds new analysis from the Pensions Policy Institute (PPI) and B&CE, provider of The People’s Pension1, which provides workplace pensions to almost 6 million people across the UK.
Giving evidence to the Work and Pensions Select Committee today (Wednesday, April 27th), the director of policy for B&CE, Phil Brown, said that their initial findings, using data from the latest Wealth and Assets Survey2, show that 54 per cent of households and 57 per cent of individuals have not saved enough and are not saving enough, to meet the replacement rates3 set by the Pension Commission in 2004.
The new analysis suggests that while the first ten years of auto-enrolment have successfully reversed the decline in workplace pension saving in the UK, a pension adequacy problem remains. The current minimum contributions of 8 per cent, with a minimum 3 per cent contribution from employers, are not sufficient to provide adequate incomes in retirement.
The full findings of the report will be published in early Summer, but B&CE revealed that even if you take additional capital and housing into account, more than a third of households and individuals still won’t have enough to maintain their current standard of living.
Commenting, Phil Brown, said:
“Automatic enrolment is a success story that has reversed the decline in workplace pension saving across the UK, but the reality is that people still aren’t saving enough. At a time when the cost-of-living crisis is worsening and people are dealing with difficult financial decisions every day, the UK faces a tough choice.”
“Whilst it wouldn’t be right to raise saving rates in the current economic climate, we can’t ignore that people are not saving enough to live on in retirement. This year, as auto-enrolment turns 10, it’s time to renew conversation about how automatic enrolment should evolve once the cost-of-living crisis has abated, to ensure it reaches its full potential. It’s our role to provide evidence but politicians, trade unions and employers need to take the lead.”
Lucy Davies, 36, lives with her husband and son in Southsea, Hampshire, where she works as a part-time gallery assistant, alongside running her own calligraphy business. Contributing the minimum to her pension, she’s concerned she won’t have enough to live on when she stops working.
“It’s so difficult. I know saving for the future is important, but the reality is that I have bills to pay now – bills that are only increasing. Childcare alone is a huge monthly outgoing so contributing any more than the minimum isn’t an option for me at the moment. It’s easy to put off thinking that far in the future, but if I’m honest, right now, I’m not sure I can see a point where we’ll be able to afford to completely stop working.”
Note to editors:
- The People’s Pension is a leading workplace pension scheme from not-for-profit B&CE, serving almost six million pension savers across the UK, with more than £17 billion assets under management. With no shareholders, it uses its profits to help people build financial foundations for life.
- The Wealth and Assets Survey (WAS) launched in 2006 is a biennial longitudinal survey conducted by the Office for National Statistics (ONS). It measures the well-being of households and individuals in terms of their assets, savings, debt and retirement plans.
- Pensions adequacy is often defined in terms of replacement rates; the fraction of pre-retirement income that pension income makes up in retirement. The Pensions Commission set a series of replacement rates that are the most commonly accepted definition of pensions adequacy. These replacement rates underpin the policy work that is the basis for automatic enrolment. The replacement rates vary by pre-retirement earnings as someone with a lower income will need to replace a larger fraction of income in retirement in order to reach an adequate standard of living. As the replacement rates were set by the Pensions Commission using earnings data in 2004, we have uprated them to reflect earnings growth since then.
The below is the updated replacement rates table from PPI. It shows an uprating of the 2004 replacement rates to 2022 earnings in order to reflect earnings growth in the intervening 18 years.
Income up to (50% Replacement Rate above final value) 80% 70% 67% 60%
Year 2022 £14,223 £26,302 £37,478 £60,055