Millions of Brits face retirement ‘cliff-edge’ after not saving enough
Millions of Brits are not saving enough to retire, leaving them facing a significant ‘cliff-edge’ upon leaving the workforce, a government-backed report has warned.
The Pensions Commission, which was revitalised by the government to address the savings shortfall across the UK, said 15m people are not currently saving enough for retirement. The group warned this number could surge to 19m without a radical shake-up in the pensions space.
The commission said the lack of appropriate savings has left large groups across the UK “facing a severe cliff-edge when they retire”, with 45 per cent of working age adults not saving into a pension at all.
Pension alarm bells
The report comes as analysts and industry figures continue to raise the alarm over retirement saving habits in the UK, particularly among the self-employed as well as low and middle earners.
Low and middle earners were found to be most at risk of inadequate pensions, with roughly 50 per cent not contributing to a pension at all despite many having access to auto enrolment.
Under auto enrolment employers must place employees in a pension and contribute to their retirement funds, with the rules stating this must be a minimum of 8 per cent of a worker’s earnings.
Workers pay in five per cent and employers add 3 per cent.
But just 17 per cent of self-employed people have any form of pension, falling to four per cent among those who earn solely from their self-employment, with younger self-employed Brits even less likely to be doing so.
Pensions Commissioner, Baroness Jeannie Drake, said: “The second Pensions Commission is looking forward and seeing many people not saving enough and millions not saving at all.
“This demands a renewed national settlement on pensions”
Andy Briggs, chief executive of Standard Life, also noted that “change needs to happen with urgency”, as “the longer we wait, the harder and more costly this becomes to fix”.
Do not ‘pull any punches’
The report also signalled a change to the system is needed to close the savings gap between men and women, with women likely to have less due to the likelihood of leaving employment for caring responsibilities.
According to the commission, women approaching retirement have on average half the pensions savings of men, with a median pension wealth of £81,000 compared to men’s £156,000.
Drake continued: “The recommendations we present in our final report will address the need to secure adequate income in later life and a pension system that is fit for decades to come.”
Meanwhile, the interim report found that millions more people could be reliant on state support in retirement unless action is taken.
The commission is expected to publish a final report with recommendations for changes to government policy next year, with industry figures warning it “cannot pull any punches”.
Mark Futcher, head of defined contribution pensions at Barnett Waddingham, said: “It’s reassuring that the Pension Commission is focused on the right issues, but it now needs to put its foot on the pedal. Too much time has already been spent diagnosing the same problems.
“With so much to tackle, there’s a valid concern that not everything can be fixed overnight. Nevertheless, the Commission’s final recommendations in 2027 cannot pull any punches. We can’t keep staring at the same problems year after year.”