New data has revealed that 38% of working age people (equivalent to 12.5 million) are undersaving for retirement when measured against TRRs Before Housing Costs (BHC).
This data is calculated on the basis of converting the full value of an individual’s Defined Contribution (DC) pension into an annuity. The level of undersaving increases to 43% of working age people (equivalent to 14.1 million) when 75% of an individual’s DC pension is converted into an annuity.
Around 14% of those in the lowest earnings band (less than £14,500 gross pre-retirement earnings per year) are undersaving compared with 55% in the top earnings band (more than £61,500 per year). State Pension will make up a larger proportion of a lower earners target income.
Jon Greer, head of retirement policy at Quilter said:
“Although Automatic Enrolment has had a transformational impact on how many people are saving for retirement, these stark figures make a case that this excellent policy now needs some fine tuning to ensure it drives more people into saving for retirement. If the government and general population do not start taking this seriously millions face a retirement in poverty relying on a meagre amount more than just the state pension.”
Of the 12.5 million people undersaving, 5.3 million (42%) reach more than 80% of their target income. 12% of working age people are undersaving for retirement when measured against the PLSA Minimum RLS (one of many alternative ways of measuring adequacy of pension income). This increases to 51% and 88% when comparing against the PLSA Moderate and Comfortable RLS.
Also, lower earners are more likely to be undersaving when measuring against the PLSA RLS. Around 34% of people in the lowest earnings band are projected to not meet the PLSA Minimum RLS, compared with only 3% in the top earnings band.
Greer also stated that “the DWP earlier this year opted to keep the Automatic Enrolment (AE) earnings trigger, the point at which an individual’s salary opts them in for automatic enrolment to their workplace pension scheme, at £10,000. Additionally, the DWP chose to freeze the lower earnings limit, the point from which an individual’s earnings are used to calculate the amount of pension contributions that will be paid into a scheme, at £6,240”.
Due to the cost-of-living crisis and general finances, Greer said that we need to “act sooner rather than later and help people save more for their retirement by implementing some of the proposals surrounding Automatic Enrolment that were put forward in the government’s 2017 review”.
Greer also added:
“These included lowering the age threshold for Automatic Enrolment from 22 to 18 and looking at the qualifying earnings band.
The government have committed to implementing these recommendations when parliamentary time allows and a private members bill was introduced to the house at the end of February but this is unlikely to become legislation. This should be an area of policy that the government are ploughing time and effort into so that we can speed up the pace of change.”
