A report by the Institute for Fiscal Studies (IFS) reveals that many workers still make low pension contributions, despite auto-enrolment improving overall pension savings.
The study, published today (16th September), found that less than half of private sector employees saving into workplace pensions contribute more than 8% of their earnings. In addition, 40% of employees in defined contribution schemes are likely to fall short of standard retirement income benchmarks.
The IFS recommends that employers contribute 3% of total pay for all workers, even if employees do not contribute themselves. This proposal is part of the government’s pension review, which started in August.
Royal London Director of Policy, Jamie Jenkins, said: “The nation is facing up to a ticking time bomb, with increasing numbers of people heading towards retirement with inadequate savings.
“This isn’t simply a societal issue, but an economic challenge. People should be able to retire with dignity, rather than feel they enter later life viewed as a burden on the working population.”
Jenkins described the government’s pension review as a ‘crucial inflection point’ to address the issue.
The IFS report highlighted that low earners, single individuals, and retired renters are particularly at risk of inadequate retirement income. It also found that a quarter of employees are still not saving into pensions, half of whom are targeted by auto-enrolment.
Laurence O’Brien, IFS research economist, noted that while the state pension offers a solid foundation, many private sector employees are on track for insufficient retirement income.
Other recommendations from the IFS include lowering the auto-enrolment age from 22 to 16 and increasing the upper limit for qualifying earnings. Matt Calveley, Director at Isio, supported raising minimum contributions but emphasised the need for a phased approach, with employers increasing their share first.
He also suggested offering flexible options for higher contributions and expanding automatic enrolment to reflect longer working lives, while maintaining simplicity in the system.
Source: O’Connor, Tara. FT Adviser. September 2024. https://www.ftadviser.com/pensions/2024/09/16/pension-undersaving-is-ticking-time-bomb/.