The analysis provides a new estimate of the number and proportion of working age individuals, aged 22 to State Pension age, who are under-saving for their retirement. The publication updates the analysis Department for Work and Pensions (DWP) published in the Analytical Report of the 2017 Automatic Enrolment Review.
Analysis of future pension incomes
“The Government’s analysis of retirement income adequacy exposes the lack of retirement savings in the UK, meaning that many people will struggle financially in later life. Unsurprising 38% of working age people, equal to 12.5 million people, are under-saving for their retirement when measured against the Target Replacement Rate Before Housing Costs. Higher earners are more likely to be under-saving compared to those earning the least, as for lower earners, the State Pension will replace more of their income in retirement.
“This analysis lifts the lid off the numbers under-saving and demonstrates the clear need to urgently implement the 2017 auto-enrolment reforms as a first step. These will bring more people into the scope of auto-enrolment allowing them to start saving in a workplace pension from a younger age and particularly for low to mid-earners increases the amount of employer and employee contributions, as they will be based on earnings from the first £ rather than applying a salary offset.
“But the government needs to go much further, quicker, and phase in higher auto-enrolment contributions of 12% of total earnings, spilt equally between employers and employees, to enable more people to achieve an adequate income in retirement, with flexibility for lowers earners. Those earning least could be offered the chance to stick at 8% if they are already on track for a reasonable replacement rate. But higher earners may need to be encouraged to pay higher voluntary contributions on top of auto-enrolment contributions to be able to maintain their lifestyles in retirement. The government must push the accelerator hard and publish an implementation plan for the necessary changes to avoid too many people sleepwalking into a miserable retirement.”
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