A report warns that millions of UK citizens are at risk of retiring with a’significantly under-pensioned pension’.
According to research conducted by now:pensions, the Pensions Policy Institute and other institutions in the UK, almost 9 million people are significantly underpensioned when compared with the rest of the population.
It found that groups who are under-pensioned will receive as little as 3,650 to 6,750 PS a year from a private pension. It argues that even with their state pension added, many will still be vulnerable to financial instability in retirement.
The groups at greatest risk of retirement poverty are women, women divorced, single mothers, self employed people and people who hold multiple jobs.
The report highlights that auto-enrolment, which began in 2012, has changed the way UK workers plan for retirement. It has also brought over 11 million people to a workplace pension.
Many people who are not eligible for automatic enrollment do not qualify for it. They miss the chance to save money for retirement.
The issue of retirees who are under-pensioned has not been resolved, despite some progress, including the raising of the auto-enrolment eligibility. The report stated that under-pensioned people are therefore forced to rely on state pensions more.
These groups are doubly at risk because they have traditionally been less likely to accumulate the 35 years worth of contributions required to receive the maximum pension from the state (for 2025/26, this would be PS230.25 a week).
Separately a newspaper analysis highlighted that while auto-enrolment meant more people are saving for a pension at work than ever before, it also led to an sharp decline in the employer contributions.
According to the Department for Work and Pensions (DWP), auto-enrolment will result in PS28bn being saved in pensions by 2020 compared to 2012.
It said that over the last three years, the company’s payments to staff pensions had fallen by 16%. If you include inflation, the figures of the Financial Times are even lower.
The paper warns that this downward trend will continue following the increase in employer national insurance rates last month. Many businesses are simply unable afford to offer more than the minimum requirements.
The broader concern is the fact that auto-enrolment can give people the false impression that they’re saving enough money for retirement, when in reality many of them aren’t.
According to a study conducted by The Institute for Fiscal Studies last year, 30% to 40% (5-7 millions people) of employees in the private sector who save into DC pension plans are on track to receive incomes below what they will need for retirement.
The report concluded that, while some progress has been made in the area of pension saving, there is still a large gap for under-pensioned individuals.
Since the report of 2022, people from ethnic minorities and caregivers have seen a rise in employment rates, and consequently, savings for pensions.
The study found that despite this increase, the pension savings of these groups were still lower than the average for the UK population, with 62% – 80% of the total amount compared to the UK’s average.
People with disabilities were the least-pensioned group, with a pension income that was only 43% of the UK’s average. This meant they received a private pension of PS3,650, compared to the average population pension of PS8,500.
Since the first report in 2020, women’s auto-enrolment eligibility has increased significantly. It went from 77% to 85% by 2025. Despite these improvements, women retire with only 67% of UK average. Single mothers have just 54%.
Now:pensions proposes five policy reforms that will help to close the pension gap.
- Removing the PS10,000 Auto-Enrolment Earnings Trigger
- Reduce the pension contribution limit for lower-earnings individuals
- Introduce a top-up for family carers
- Pension savings should be considered when settling divorces
- Increase your efforts to reduce childcare costs and availability.
Joanne Segars (now:pensions chairperson of trustees) said: “Without additional policy action, millions will struggle to achieve a secured retirement.
“That’s the reason we suggest key reforms. We’re removing the PS10,000 earnings trigger for auto-enrolment, scrapping lower earnings limits on pension contributions and introducing an additional family caregiver’s contribution.
Segars said that “these measures would ensure that everyone has an equal opportunity to build financial security, regardless of working patterns or circumstances.”
John Adams, senior analyst and author of the PPI report, stated: “The employment rate in the general population is down slightly from the previous report. Single mothers, carers and divorced women, who are pensioned, are especially affected.”
Changes to automatic enrollment criteria could lead to huge pension savings, for example allowing income from multiple jobs to be combined towards the earnings trigger. Or removing the earnings threshold entirely.
The report concluded that while some progress has been made in the area of pension savings adequacy for under-pensioned individuals, there is still a large gap between their pension savings and the average.
Since the report of 2022, people from ethnic minorities and caregivers have seen an increase in employment and pension savings.
The study found that despite this increase, the pension savings of these groups were still lower than the average for the UK population, with 62% to 88% of the total amount compared to the UK’s average.
People with disabilities were the least-pensioned group, with a pension income that was only 43% of the UK’s average. This meant that they had a pension income of PS3,650, compared to the average population pension of PS8,500.
Since the first report in 2020, women’s auto-enrolment eligibility has increased significantly. It went from 77% to 85% by 2025. Despite these improvements, women retire with only 67% of UK average. Single mothers have just 54%.
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