DWP research reveals the scale of the savings challenge
The Department for Work and Pensions (DWP) says that millions of working age people in the UK could secure a financially comfortable retirement by making only modest changes to their saving habits.
In spite of the Government’s sweeping reforms of the pensions system, research suggests nearly 12 million of us are failing to save enough towards our retirement, with three key factors leading to poor retirement income prospects:
- Not having a full work history – this can result in a reduced entitlement to the State Pension (because of insufficient national insurance contributions) as well as a reduced capacity for private pension saving. This factor is most typical amongst lower-income groups
- Not contributing to private pensions while in work – this is more typical of people in the middle-income groups
- Not contributing enough to private pensions to generate a large enough retirement income – this factor is more typical of people in the higher-income groups
The report then sets out the findings of analysis into how the numbers of “undersavers” could be affected by changes in the following five behaviours or benefits: increased numbers working after age 50; different rates of opting out from auto-enrolment; higher contributions to defined contribution (DC) schemes; up-rating of the new State Pension by earnings growth; and a higher starting value of the new State Pension.
The report looks at all of these in some detail and concludes that the two that could potentially cause the largest changes would be:
- Increasing the level of contributions into DC schemes from the 8% minimum, concluding that even increasing rates to 15% will not be enough to lift the very highest earning undersavers into adequacy; and
- Up-rating the new State Pension by earnings rather than the triple-lock, which would cause a significant increase in the number of undersavers, mainly among middle-income workers
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
