Yahoo Finance Majority of workers not paying enough into their pension pots
Most workers aren’t saving enough for retirement, with nearly nine in ten middle-earning private sector workers saving less than recommended for their pension.
Around 60% of middle-earning private sector employees who are contributing to a pension are saving less than 8% of their earnings, the Institute for Fiscal Studies (IFS) said.
Nearly 90% of them are saving less than the roughly 15% of earnings previously recommended by the government's pensions commission.
An increasing number of those in their 50s and 60s who are nearing retirement live in more expensive, privately rented accommodation and are not homeowners.
“Unless a wave of inheritances leads to rising homeownership, this percentage could be even higher for younger generations, leading to a combination of a disappointingly low standard of living in retirement and/or greater reliance on housing benefit,” the IFS said.
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The think tank warned that workers hoping for a comfortable retirement face a risky future..
'While current pensioners are still doing well on average... the future looks risky at best for many current workers hoping for a comfortable retirement,” the IFS said in a report.
When it comes to self-employed workers, Fewer than one-in-five are saving in a pension.
Higher state pension ages pose difficulties and longevity improvements have not been as big as predicted a decade ago, according to the report.
The past 20 years have seen the continued decline of defined benefit (salary-linked) pensions in the private sector and low typical contributions to defined contribution pension schemes, the IFS said.
The introduction of pension freedoms has given people flexibility over their retirement, but individuals, rather than employers or insurance firms, now often bear the burden of the risk of poor investment performances and uncertain lifespans, it added.
A two year project which aims to come up with long-term solutions to the UK’s pensions crisis has been launched by the Institute for Fiscal Studies in partnership with abrdn’s Financial Fairness Trust.
The Pensions Review will run for two and a half years and “comprehensively assess the consequences of current pension policy, the economic environment and individual behaviour for the future of living standards in retirement”.
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Paul Johnson, the director of the think-tank, said a fresh look at the UK retirement saving system was long overdue.
Johnson said: "Automatic enrolment has brought millions into workplace pensions, but all too often at much lower rates of saving than the Pensions Commission thought would be needed.
“Most private sector workers are left having to manage considerable risks – not least over how long their retirement will be.”
Alistair Darling, pensions review steering group member and chair of abrdn Financial Fairness Trust, said: “Twenty years ago we set up the Pensions Commission, which laid out a range of important reforms including auto-enrolment.
“But today much has changed and the landscape is very different. Too many are saving too little for retirement.
“Many self-employed and those in insecure work don’t have a pension. Increasing numbers are living in the private rented sector, which will lead to higher housing costs in later life.
“Whilst today many pensioners are doing well on average and pensioner poverty has been cut drastically, we need a major review to avoid a future where too many won’t have enough to live on in their old age.”
Watch: When should I start paying into a pension?
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