Low and middle earners, the self employed, and women are not saving enough money for retirement leaving large groups of society facing a “severe cliff-edge” when they retire.
An interim report on the state of retirement by the Pensions Commission has identified an estimated 15 million people are under-saving for retirement; potentially reaching 19 million without action, warned the Department for Work and Pensions.
The commission was set up as part of government’s wider reforms to the pensions system to “help more people retire with dignity” and follows in the footsteps of the work of the 2002 to 2006 which recommended automatic enrolment into pension saving. That move resulting in 89% of eligible employees now saving into their pensions, up from 55% in 2012.
The interim report sets the direction for further work to improve retirement outcomes ahead of the final recommendations in 2027.
The findings of the interim report identify law and middle income earners are at most risk, with around half saving only at minimum automatic enrolment levels with little else to fall back on. Just under half (45%) of working-age adults – around 18 million people – are not saving into a pension at all, despite nearly half of them being in work.
Just 4% of self-employed workers are saving for retirement, with the percentage even lower among younger self-employed people.
For those who are saving into private pensions, as many as three in ten of the funds are being accessed at the earliest possible opportunity, with half of the amounts saved taken out in full. Large expenses like a car, holiday or renovations are swallowing up around 50% of these lump sums.
The report suggests there is a need for the system to evolve to meet modern working lives, with final recommendations to be published in early 2027.
The pensions commissioner, Baroness Jeannie Drake, said: “Over the past two decades since the Turner Commission there is no doubt pensions reform can be described as a success. Yet the second Pensions Commission is looking forward and seeing many people not saving enough and millions not saving at all. This demands a renewed national settlement on pensions.
“Achieving this will require clarity of purpose, but it also offers a moment of opportunity; to renew a social contract that commands confidence across the country. The recommendations we present in our final report will address the need to secure adequate income in later life and a pension system that is fit for decades to come.”
Minister for Pensions Torsten Bell MP, added: “Britain has got back into the pension saving habit, but the job is only half done with tomorrow’s pensioners still on track to be poorer than today’s. The Pensions Commission sets out clearly the scale of the challenge: not enough people are saving for retirement, and many of those that are aren’t saving enough.
“The Commission warns that without action millions more people could be at risk of becoming reliant on state support in retirement.”
The government says it is working to reform the pension landscape with the implementation of the The Pension Schemes Act, passed this month, which will benefit 22 million workers by up to £29,000 by the time they retire, driving down costs, boosting returns and enabling the automatic consolation of small pension pots to ensure “every pound saved works harder for working people”.
