16 million workers at risk of not saving adequately for retirement

Around 85 per cent of workers, equal to 16 million people, are not saving at levels likely to deliver an acceptable standard of living in retirement, new research has found, prompting calls for the development of a 'Living Pension Standard'.

A report from the Living Wage Foundation and the Resolution Foundation raised concerns over the current levels of saving, explaining that while auto enrolment (AE) improved rates of saving, meeting the Living Pension benchmark requires more than the AE minimum.

The research, which excluded defined benefit (DB) pensions, found that low-paid workers are least likely to be saving at appropriate levels, with fewer than five per cent saving at a rate that would provide an adequate standard of living in retirement.

Gender differences were also highlighted, as the research revealed that 23 per cent of male workers met the ‘whole career’ Living Pension cash benchmark, compared to 15 per cent of female workers, primarily due to differing levels of pay rather than differing saving behaviour.

However, it revealed that this pattern was reversed when considering only low-paid workers, with 5 per cent of low-paid female workers meeting or exceeding the ‘whole career’ percentage Living Pension benchmark, compared to 3 per cent of low-paid male workers.

The report suggested that this is partly because low-paid women are concentrated in the public sector, where pension saving rates are relatively high, with 23 per cent of low-paid women work in the public sector, compared to 6 per cent of low-paid men.

In addition to this, it found "huge variations" in whether workers are meeting the Living Pension benchmarks by sector, as 55 per cent of workers in the finance industry save at or above the ‘whole career’ cash Living Pension benchmark, compared to only 2 per cent of workers in hospitality.

It also clarified that these differences persist even if they account for variations between sectors in workers’ pay levels, occupation and whether they are full-time, suggesting that sector differences are driven either by employers’ behaviour or their approach to the overall remuneration package.

The Living Pension benchmarks are based on a previous feasibility study by the Resolution Foundation, which proposed a 'whole career' benchmark of 11.2 per cent of pay, or £2,100 per year for someone working full-time at the living wage.

In light of the latest findings, the Living Wage foundation has called for the development of a new 'Living Pension Standard', which is currently being piloted with a number of employers, with the initiative funded by abrdn Financial Fairness Trust.

Living Wage Foundation director, Katherine Chapman, suggested that developing a Living Pension standard would not only encourage and reward employers offering more than the minimum, but provide a clear benchmark for employees to measure against.

She stated: “The current cost-of-living-crisis has hit low paid workers hardest, and many are not only struggling to keep their heads above water today, but also worrying about an uncertain future.

"This report shows that 16 million people are not saving at levels which are likely to prevent poverty beyond their working lives. Today’s cost-of-living crisis risks becoming tomorrow’s pensions crisis.

“Over the last ten years the Living Wage campaign has grown in strength and numbers. Now paid by over 10,500 employers, it has delivered essential pay rises to 300,000 workers.

"Developing a Living Pension standard will build on this, it will not only encourage and reward employers offering more than the minimums to their employees, it will also provide a clear benchmark for those employees to measure against.

"By making this accessible and simple, we aim to bring greater transparency, understanding and confidence to pensions, and build on the work of the Living Wage, by providing security and stability for workers now and in the future.”

Adding to this, Abrdn Financial Fairness Trust chief executive, Mubin Haq, said: “We have made some good progress on pensions in recent years, especially the introduction of auto-enrolment which has led to millions more saving towards their retirement.

"However, the amounts saved in defined contribution schemes fall far short of what is needed. This affects all workers, but those in low pay even more acutely.

"Unless we take action now we are on course to wipe out many of the gains we have seen in reducing pensioner poverty. A Living Pension provides employers with a model to do the right thing and ensure their staff are not facing hardship in the future.”

Isio director and pensions tax lead, Paul Moffatt, also highlighted the research as demonstration of the challenges being faced and the potential impact this could have on future generations.

"As an industry we have a responsibility to provide support now, before it’s too late and a Living Pension could help provide financial confidence for those that need it most," he said.

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