More than half of UK households aren’t saving enough for retirement

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.” 


Will pension savings be adequate for retirement?

The figures speak for themselves

Since 2012, 10.6m employees have enrolled in a workplace scheme, with an additional total of £28.5bn saved into UK pension pots each year.* But there remains the question of whether the average auto-enrolled member is saving enough for their retirement.

In its 2005 review, the Pensions Commission was clear that at least 16% of qualifying earnings – double the current minimum contribution – would be required to provide an adequate retirement income, with half expected to come from a workplace pension and the other half from additional voluntary saving.**

A ‘basic’ or ‘comfortable’ retirement?

But new research shows this hasn’t happened. Our report, Pension Adequacy: A Pension Saver’s Perspective,*** finds that most auto-enrolled pension savers and employers are anchored to the minimum rate, with most savers wrongly believing that they are on track for a ‘moderate’ or ‘comfortable’ standard of retirement living, based on the PLSA Retirement Living Standards. Just 7% of savers are aware that the current minimum contribution will only provide a ‘basic’ retirement income, and worryingly, 4 in 10 people believe that because the contribution rates have been set by the government, they are saving enough.

Additionally, the idea of additional voluntary saving is far from reality; almost half (43%) of all savers haven’t considered paying more into their pension, almost half (46%) don’t know they’re allowed to pay in more than the minimum, and two-thirds (64%) of people have less than £10,000 in additional savings.

If you accept the idea that contribution levels should be increased to prevent poor saver outcomes, questions remain:

  • How much should this increase be?
  • Who should bear the burden?
  • How do we encourage people to pay more if they can afford to?
  • Should it be made easier for them to pay more as they get older?

With many savers not knowing they’re allowed to increase their contributions or how to pay more in, our research is clear that more can be done to help savers understand the options open to them.

What needs to be done for a positive saver outcome?

There’s a growing consensus across the pension industry that an increase in contributions is required to lead to positive saver outcomes. But with so many questions around how this could or should be done, we’re calling on the government to set out plans for a review of the minimum contributions required for auto-enrolment.  We’re also asking them to outline a timeline for implementing the recommendations of the 2017 automatic enrolment review once economic circumstances allow.

While millions of people are rightly concerned about the increasing cost of living, a very real problem is building up for millions in their retirement and it is crucial that the government comes up with a plan to tackle this.

The deeply troubling findings of this research reveal that millions of hardworking people are simply not saving enough for their retirement. While affordability obviously plays a role in this, the research shows that in most cases, people believe that because they’re saving what they’ve been told to by those who run the country, they’re saving enough. While auto-enrolment has had a truly successful first decade, government must now plan ahead to ensure that over the next 10 years, auto-enrolment members are saving enough to provide for a comfortable retirement.

It’s clear that some need to save more for their retirement and the government needs to act to ensure that the minimum contribution level helps them do this. This is something that must be addressed to ensure the continuing success of auto-enrolment.

*Department for Work and Pensions figures (2021)

**Pensions Commission (2005)

*** Pension Adequacy: A Pension Saver’s Perspective report, prepared by Ignition House and published by B&CE in March 2022.

Pandemic has helped workers to save more – latest research

Nearly three in 10 people (29 per cent) have been able to save more money since the beginning of COVID-19, and latest research shows how the pandemic has impacted people differently depending on what jobs they have.

A YouGov survey, conducted on behalf of The People’s Pension1, shows that more than a third (37%) of those described as ABC1s, who tend to occupy managerial and supervisory positions, have been able to save more since March 2020, compared to 20% of C2DE workers, who are typically in manual and lower paid jobs2. The regions where the highest proportion of people said they were able to save more include; Yorkshire and the Humber (36%), East Midlands (35%), South East (35%) and Wales (33%). Whereas the regions least likely to have saved more are: North East (20%), Northern Ireland (22%), North West (23%) and South West (24%).

The poll also shows that 1 in 20 UK adults (5% ) have increased the amount they save into their pension since the beginning of the pandemic (March 2020) with 6% of ABC1s achieving this, compared to 3% C2DEs.

The survey of 2,163 adults , conducted as furlough came to an end, shows that since the pandemic began:
• 2% have been left out of work
• 9% say they have earned significantly less
• Two thirds of pension savers (67% haven’t felt the need to engage with their pension
• 3% withdrew money from their pensions

The survey follows recent figures from the Department for Work and Pensions3 that show that overall saving into UK workplace pensions in 2020 rose by £5.5bn to £105.9bn.

Phil Brown, director of policy and external affairs at B&CE, provider of The People’s Pension, said: “This research confirms that the economic fallout from the pandemic has impacted people differently, depending on how much they earn and where they live. It’s very interesting to see that nearly three in 10 adults (29%) have been able to save money due to the fact they have spent a lot less on holidays and going out.

“The results of our survey also reinforce the importance of saving into a pension, something that people have continued to do during a time of great economic uncertainty.”


Why a pension statement season might negatively impact engagement with savers

Encouraging more people to engage with their pensions is something everybody in the industry should agree with and we very much welcome initiatives which will help improve this.

It’s been known for some time that a pension statement season – when all providers would be compelled to send out statements during the same narrow window – was being discussed within the Department of Work and Pensions. Now, following the Pensions Minister’s recent address during the Pensions and Lifetime Savings Association conference, we know that this is an idea which could become a reality.

It’s widely known that many people don’t usually read their pension statements. Schemes send them and too often they languish unread. There’s little point in the simplified statements, which will be introduced in a year’s time, especially if they get sent out and are unread like previous communications. Policymakers are of the belief that a pension statement season will prompt more people to engage with their pensions but there are genuine concerns within the industry that any such policy might lead to unintended consequences.

Questions to be answered

Those of us charged with delivering such a significant change have questions about how it would really work and what the impacts of a statement season would be on savers.

As the biggest independent master trust in the UK, The People’s Pension has 5.4 million members. If we were to send out statements to all our members during a month, that would be 180,000 statements posted a day. It costs roughly £1 per paper statement, a figure that doesn’t vary much between providers. So, if the government mandates paper statements it could cause additional costs, which may be passed to pension savers through charges.

Then there’s the likely impact on customer service teams, rather like the one I oversee. Currently we phase sending out statements due to the increase in contact from customers after they’ve received them as, often, the notification of a statement acts as a trigger to transact with us.

We expect that a statement season will concentrate all the customer contacts into a short window. This could lead to a saver’s first engagement with their pension provider being a negative one as they may have to wait for an unacceptable period or be unable to get through.

There’s often an assumption that you can just scale up and scale down these operations to meet demand, but sadly that’s not how it works. We’re administering people’s life savings and you need to be able to trust the people you have doing that. Trust means training, knowledge, skills and expertise and that takes time. There isn’t a pool of people out there you can just draw on at short notice to fill gaps in your operation – especially if every other pension provider has the same problem.

Potential for saver frustration

It’s likely that the main impact of a statement season will be saver frustration. There also won’t be a major lift in engagement when measured over the course of a year – at least not for some time. Concentrating engagement into a short period will overload contact centres and degrade the experience people have talking to their pension provider.

People contact us for a variety of reasons; some to see how their savings are doing, while others ring up because they are dealing with the death of a family member or because they need quick access to their savings. It’s people like this we’re especially worried about as an overloaded call centre could prevent them from getting through when they need support the most.

We understand the intention behind this proposal, but we remain concerned that the government’s plan to improve engagement will result in frustration rather than meaningful engagement.

Our role in helping savers fund their future

We revisit our ‘New choices, Big decisions Pension Personalities’ research and the savers most at risk if we don’t find simple ways of communicating the complexities of retirement options to them.

A great success, but what now?

Next year marks the 10-year anniversary of auto-enrolment (AE). It’s been a resounding success, having helped more than 10 million people to start saving for retirement.

But more than 6 years after the introduction of pension freedoms, significant concerns linger about how to ensure savers make wise retirement choices.

Given the success of auto-enrolment was based on inertia, it would seem odd that the pensions industry would assume all savers should suddenly understand the complexities of retirement options and take control of their retirement planning.

It’s alarming to see how many savers are sleepwalking into retirement. To avoid poor saver outcomes, what’s needed are simple, good quality products that meet AE savers’ needs – built to provide a sustainable income to last their whole retirement. These factors combined should further support and help them to avoid making ill-advised decisions.

New choices, Big decisions

In our quest to make pensions work for everyone, our New Choices, Big Decisions Pension Personalities Revisited research showcases the challenges faced and decisions made by many approaching retirement.

We’ve followed a group of people since pension freedoms threw the shackles off how they can take their pensions savings and found they divided into 7 subgroups, with distinct characteristics. We’ve given these subgroups personas. Let’s consider a few that concern us the most.

Leave it Larry and Linda

Are so overwhelmed by the complexity of pensions information that, recently, they’ve decided to leave their pension savings untouched. Their savings were ‘out of sight, out of mind’ unless a life event – typically illness or redundancy – changed their plans. Lacking information, they’ve not made any decisions about their pensions for now.

Spend it Simon and Sally

They were initially pleased to take their 25% tax-free cash to spend on holidays, home improvements, or new cars but haven’t planned how to manage their pension pot. Instead, they’ve just rolled it over with their pension provider into a drawdown product and withdrawn lump sums when required. This group are unaware of investment risks and their own likely longevity. Our estimates suggest that around 3 in 4 of this group will likely exhaust their pension savings before they die.

Risky business

Decisions are difficult for savers. The here and now is easy to understand, whilst years into the future are hard to imagine.

Lack of understanding could lead people into making short-term decisions that have them:

  • jeopardise their long-term financial wellbeing
  • lose potential returns
  • pay extra tax
  • cease pension payments
  • or get scammed.

Thanks to our personas research, we’re asking the questions: ‘Are we doing enough?’ and ‘What can we do differently for our 5 million plus members?’

Recently, we presented our ‘A journey not a destination’ webinar, which looks at the findings of our ‘New Choices, Big Decisions’ research in detail – a recording is available via the link. It’s essential viewing to help everyone understand how savers approach retirement. We believe the findings show members need simple, good quality products to help them achieve a sustainable income which lasts throughout retirement.

The industry must help savers, many years before they’re planning to retire, realise it’s not a future that can fund itself.

Retirement poll reveals desire for trusted guidance

Survey reveals that pension savers want trusted guidance to help them secure a good retirement

Three quarters (75 per cent) of UK adults who have a pension say that they would consider taking guidance about how to make their savings last throughout retirement from a pension provider with a legal duty to put their interests first, a new survey has revealed.

The YouGov1 survey was commissioned by leading workplace pension provider The People’s Pension2, following the publication of the ground-breaking New Choices Big Decisions3 report earlier this year, which, based on extensive interviews, found that many older savers are sleepwalking into retirement and run the risk of running out of pension savings years before they die. This study was first launched following the introduction of pension freedoms4, which has meant that individuals either must make a choice between a variety of financial products to finance their retirement or withdraw their pension savings.

The survey presented respondents with a selection of options for spending their pension savings during retirement. It found that nearly four in ten (37 per cent) of those who are saving for retirement would be prepared to be guided towards taking a pension that was split between giving them a guaranteed regular income (an annuity) and the rest as a flexible income pot (drawdown) after taking the tax-free lump sum up-front. A further 35 per cent chose a guaranteed regular income (an annuity) only option after taking the tax-free lump sum.

The survey also highlighted how unprepared for retirement planning many people are:

  • More than a third (35 per cent) don’t know when they will retire. For those aged 55 and over, more than a fifth (22 per cent) are uncertain of when they will stop working.
  • Just over one in ten (12 per cent) knew or guessed the weekly value of the UK State Pension5. This knowledge is as low as three per cent for 18-24 year olds and is only as high as 25 per cent for those aged 55 and over. 
  • Just under half (48 per cent) said they don’t know how long their retirement savings will need to last them, including 45 per cent of those aged 55 and above.
  • Nearly three in ten (28 per cent) of everyone surveyed, say they have no idea what to do with the savings they have built up for their retirement. 

Phil Brown, the director of policy and external affairs at B&CE, the provider of The People’s Pension, said: “This latest research  provides further evidence that pension savers are crying out for guidance about how they should approach retirement. It’s clear there is an opportunity for the industry and master trusts are well placed to meet it.

“Master trusts have an opportunity to develop the retirement products which will meet the needs of many for security as well as providing flexibility. This means a coming of age for well-governed auto enrolment schemes – as they move from being saving vehicles for employees to also providing their pensions in retirement.”


How UK pensions are withstanding the fallout from coronavirus

Back in March when the world was a genuinely scary place, there was feverish speculation about what the coronavirus pandemic might mean for the pensions industry.

Both privately and publicly, fears were expressed that the economic damage wrought by the both the initial financial shock and subsequent fallout from lockdown measures might lead to a significant exodus from pensions, as financially stressed savers either ceased contributing or drew down on their retirement savings.

In the months that followed, this was a trend that we simply couldn’t see in data relating to our 5 million members. To be sure that what we were experiencing was not idiosyncratic, we commissioned YouGov to conduct a national survey of more than 2,000 UK adults.

We’ve just received the YouGov results and they’re very clear: at this stage at least, those we surveyed with a pension haven’t revised their pension saving habits much, despite the country experiencing its biggest short-term slump since records began and an accompanying rise in unemployment – the largest in 11 years.

Survey findings

According to the survey, the majority (82%) of UK retirement savers don’t appear to have made any changes to their pensions since March 2020, despite the fact just over 4 in 10 of all workers have been impacted by the coronavirus pandemic. Only a very small percentage (3%) have stopped their pension contributions altogether during the past 7 months, while just 2% said that they’ve withdrawn money from their retirement savings.

The survey also indicates that while 2% cut back on the amount of contributions they made, a further 2% have increased their contributions. Of those who took part in the survey, only a minority, 1 in 7 (14%), have even checked the value of their pensions savings since the UK went into lockdown. The same research also reveals that 45% of UK workers have been affected by coronavirus in some way, which includes being furloughed and having wages or hours reduced.

Despite recent research, conducted by a financial services company, suggesting that 1 in 4 people have either reduced or paused pension saving, the YouGov data suggests the effects of the virus on retirement plans appears to be very limited. 1% have been prompted to delay their retirement plans, while 1% of all UK adults with a pension retired earlier than they’d anticipated.

Workplace pensions aren’t of course the only type of pension in the UK and pension organisations may witness different behaviour depending on the type of category of saver for whom they cater. In particular, the experience of those organisations which primarily serve the self-employed might be different from those which cater for employees.

Support from government

Government support for the employed has been an important factor. Subsidising employment has meant that far fewer employees have been confronted with a choice between prioritising short-term needs to generate immediate replacement income over longer-term retirement needs. Subsidy also extended to pension contributions for much of the year. Some categories of the self-employed haven’t benefitted from government support and this may have had an impact.

The survey results indicate how robust the design of auto-enrolment has been. Faced by a once-in-a-century crisis, it has held up very well. Employees who were at an age where they could have withdrawn pots and crystallised nominal investment losses, didn’t do so. Employer contributions and tax relief have helped encourage people to continue to save, even in difficult times.

While the hardship for many is far from over, the early signs suggest that the British public remains steadfastly committed to saving for retirement.