Six million not saving enough for retirement, warns study

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More than six million middle-class workers are failing to save enough for their retirement.

An official study shows that 40 per cent of staff eligible for the Government’s flagship retirement scheme are ‘under-saving’.

This is defined as putting away too little to maintain their standard of living in retirement.

The Department for Work and Pensions says 12million people in total are not saving enough – despite more than half of them earning at least £34,500 a year.

The findings are the result of a major study into auto-enrolment, introduced in 2012 to guarantee access to a basic company pension.

Tom McPhail, of investments firm Hargreaves Lansdown, said the policy had helped lower earners. But he added: ‘Auto-enrolment has massively diluted the average amounts people are saving into pensions.

An official study shows that 40 per cent of staff eligible for the Government’s flagship retirement scheme are ‘under-saving’ (stock photo)

An official study shows that 40 per cent of staff eligible for the Government’s flagship retirement scheme are ‘under-saving’ (stock photo)

‘The Government needs to find ways to bring contribution rates back up again or people on higher salaries are at a high risk sleepwalking into a retirement where they cannot afford to maintain their lifestyle.’

An individual on less than £13,000 a year would need to build up a pension income of 80 per cent of that figure to be judged to be saving enough.

But for those earning more than £55,000, the target is a much stiffer 50 per cent.

The challenge for employees has been made even harder by bosses scaling back their once-generous company pension schemes.

Steve Webb, a former pensions minister who is now a director at the insurer Royal London, said the pace of the Government’s pension reforms was ‘shockingy lethargic’.

‘Those who never got to join a final salary pension and who have only recently come into pensions through automatic enrolment need urgent action to help them build up a decent pension pot,’ he told the Financial Times.

Yesterday, it was announced that teenagers are set to be automatically signed up to their employers’ pension schemes.

Workers over the age of 22 have been automatically signed up to the workplace pension schemes since 2012. The government now wants to lower the age to 18.

The Department for Work and Pensions says it could help 900,000 young people save £800million for retirement.

David Gauke, Secretary of State for Work and Pensions, said: ‘We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire.

‘We know the world of work is changing, so it is only right that pension saving does too.

The Department for Work and Pensions says 12million people in total are not saving enough for their retirement – despite more than half of them earning at least £34,500 a year (stock photo)

The Department for Work and Pensions says 12million people in total are not saving enough for their retirement – despite more than half of them earning at least £34,500 a year (stock photo)

The Department for Work and Pensions says 12million people in total are not saving enough for their retirement – despite more than half of them earning at least £34,500 a year (stock photo)

‘This ambitious package will see more people than ever before helped on to the path toward building a secure retirement.’

More than 9million people are enrolled into a workplace pension scheme, in which they and their employers contribute to a retirement pot.

Under the auto-enrolment scheme savers must put away a minimum of 8 per cent of their salary, which is made up of employer, employee and government contributions.

In the first four years the number of workers under-saving fell from 14million (45 per cent) to 12million (38 per cent), the report said.

But since 2012 the number of workers having their company pensions benefits cut has grown from 6 per cent to 10 per cent.

As well as the changes for under-22s, the DWP wants workers to be able to join schemes by request as soon as they start earning, with their employers contributing from the outset.

Currently employers have to make contributions only for workers earning more than £5,876.

Ministers also plan to test ways to get more of the 4.8million self-employed people to save. The Government plans to work towards introducing the reforms in the mid-2020s.

The DWP report comes amid growing concern that, with people living longer, the state cannot afford its pensions bill.

Ministers have pledged to extend the state pension age and in future the rule will be that people should expect to spend a third of their adult life in retirement.

The report said that, while under-saving is a problem, the situation has improved in recent years.

On the subject of under-savers, it said: ‘Using existing under-saving methodologies and based on existing automatic enrolment rules on coverage and contributions, it is estimated that the introduction of automatic enrolment reduced under-saving from 45 per cent to 38 per cent individuals.

‘Of the 12million currently under-saving, around 13 per cent fell into the bottom two pre-retirement earnings bands – earning less than £25,000 a year in today’s earnings terms. More than half of all under-savers are earning more than £34,500 in the run-up to retirement.

‘Of the 1.6million under-savers in the two lower earnings bands, just over half – around 800,000 – were within 20 per cent of their target pension income.’





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