Business reporter
People retiring in 2050 will be worse off than pensioners today, the government has warned, unless action is taken to boost retirement savings.
The Department for Work and Pensions (DWP) is reviving the Pensions Commission, which first reported nearly 20 years ago, to look at how to tackle the issue.
Almost half of working-age adults are not putting any money into a private pension at all, with low earners and the self-employed less likely to be pension saving, the DWP said.
The shortfall is also worse among women and some ethnic groups, with only one-in-four people of Pakistani or Bangladeshi background saving in a private pension.
People drawing their pension 25 years from now are set to be £800 or 8% worse off per year than their counterparts today, the department said, with four in 10 people currently not saving enough for their retirement.
Rather than launching a new commission from scratch, the government said it was reviving the “landmark” Turner Pension Commission which reported in 2006, under the last Labour government, and led to the roll-out of automatic enrolment into pension saving. As a result 88% of eligible employees are now saving, up from 55% in 2012, the DWP said.
Despite that progress, the DWP said new analysis revealed “stark” findings including that:
- more than three million self-employed workers are not saving into a pension
- only one-in-four low earners in the private sector are saving into a pension
- only one-in-four of people of Pakistani or Bangladeshi heritage are saving
The analysis also found a 48% gender gap in private pension wealth among people currently retiring, with a typical woman receiving just over £100 a week and a man receiving £200 from private pension income.
The commission is not designed to directly address issues around the cost of the state pension.
Recent reports have raised questions over the affordability of the “triple lock”, introduced in 2010, which guarantees that state pensions will rise every year by the same amount as average wages, inflation, or 2.5%, whichever is higher.
As the population ages, and people live longer, the cost of that policy is set to grow significantly.
Its cost is forecast to be three times higher by the end of the decade than was original estimated, after successive years of high inflation, followed by strong wage growth.
Instead, the relaunched Commission, which will report in 2027, will look at savings in private sector pensions.
It will bring together trades unions, employers and independent experts, some of whom also took part in the original Commission. It will look at what is preventing people from putting more into their retirement pots and will aim to build a national consensus around future strategy.
Kate Smith, head of pensions at pension firm Aegon, urged the Commission to make “bold, brave and possibly unpalatable recommendations”, including “significant increases” to auto-enrolment contributions after 2029.
Paul Nowak, General Secretary of the Trades Union Congress described it as “a vital step forward”.
“Everyone deserves dignity and security in retirement, but right now many workers – especially those in the private sector – will find themselves without enough to get by on,” he said.
Caroline Abrahams, charity director of Age UK said that while the state pension provided the bulk of income for most pensioners, it was “hugely important” to consider the role of private savings, as the current system was leaving many pensioners struggling to make ends meet.
“Hopefully this can be avoided in future and particularly disadvantaged groups, including low-paid women and self-employed people on low incomes, can be helped to put money aside when appropriate for them to do so,” she said.
Catherine Foot, director of the think tank Standard Life Centre for the Future of Retirement, said that 17 million people were not saving enough to achieve the retirement they wished to have.
“The next two decades is when the effects of the savings crisis will really start to bite,” she said.
It was crucial that the Commission was able to take a step back and view the system in its entirety,” she added.
“There’s an opportunity to examine how different elements of the system are working together.”
