Experts warn on intergenerational saving timebomb despite record workplace pension take-up

 
Oliver Gill
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Younger generations are not saving the as much into defined contribution pensions compared with older counterparts with final salary schemes (Source: Getty)

Retirement saving levels have been labelled as "brutally not enough" despite work workplace pension participation today hitting an all-time high.

Some 39.2m are enrolled in a workplace pension, a jump of 17 per cent, according to official statistics.

But experts highlighted the amount being set aside into pension pots is a fraction of what has been saved by older generations in so-called gold-plated final salary, or defined benefit, schemes.

The Official for National Statistics (ONS) figures revealed defined contribution saving rates of 4.2 per cent compared to the average for defined benefit schemes over five and a half times more at 22.7 per cent.

"It's not enough money. It's just brutally not enough money going in," former pensions minister Steve Webb told City A.M..

Firms are still forking out for the schemes for people who are coming up to pensionable age and people that have already retired, which gives them less money for today's younger workers [and their] pensions and wages.

Read more: MP committee chair supports plans for stricken firms to jettison pensions

Opt-out

Auto-enrolment, a government scheme which shifts the onus to opt-out rather than opt-in to a pension, has boosted the number of people saving for later years with 8.5m now signed up.

Low current contribution rates are a function of auto-enrolment minimum levels of two per cent, which are set to rise to eight per cent by 2019.

"That four [per cent] will end up nearer eight in a few years time. But it is still not 22," said Webb, now the director of policy at Royal London.

AJ Bell senior analyst Tom Selby said setting aside eight per cent of earnings "won’t be enough to provide a good retirement income for most people".

And Hymans Robertson partner Chris Noon added:

We need to see overall saving rates in excess of 15 per cent of pay and begin to set expectations of working lifetimes.

Meanwhile, Old Mutual pensions expert Ian Browne warned that Britons may be more inclined to opt-out of workplace pensions as they notice a larger proportion of their income is syphoned off into retirement savings.

"Opt-out rates are low but not insignificant, and the real test will come in 2018 and 2019 when minimum contribution levels increase," he said.

Read more: Pilots left "bitterly disappointed" as British Airways scraps pension pot

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