8th August 2014
The government has warned 12 million people in the UK are still under-saving for retirement and urged them to make changes now to secure a comfortable old age.
The Department for Work and Pensions (DWP) has said making small adjustments to spending and saving habits could mean the difference between a retirement spent in poverty or comfort.
It said 11.9 million are saving too little; of those half are at least 80% of the way towards achieving their retirement income target but 8% are less than half of the way to their target.
Pensions minister Steve Webb said the state pensions would provide a ‘safety net’ for pensioners but individuals needed to start savings to ensure a higher standard of living in old age.
‘While the state will always provide a decent safety net so people can get by, anyone wanting to see their standard of living maintained into old age needs to make their own provision too,’ he said.
‘This new research shows that by saving just a little more, a huge number of working people could make their future retirement so much more comfortable.’
Government research showed that a number of factors contribute to poor retirement income, including not having a full work history that reduces state pension entitlement, failure to save into workplace pensions, and not contributing enough to other private pensions.
The DWP said increasing workplace pension contributions is one of the best ways to ensure a better retirement. An increase from 8% of earnings – which will become the set pension contribution under auto-enrolment in 2017 – to 12% would lift 600,000 out of under-saving and an increase in contributions to 15% of earnings would raise a further 500,000 up to adequate levels of saving.
Auto-enrolment, which sees employees automatically placed into workplace pensions, intends to increase the level of combined contributions paid by employees, employers and topped up by the government to 8% but many have argued this does not go far enough and called for contributions to be raised further.
The DWP said: ‘Higher income groups could benefit significantly from higher contribution rates but [we] recognise the danger that, if set too high, these could prove punitive for lower earners and encourage more people to opt out of workplace pensions entirely.
‘On this basis, the DWP considers that further work is needed to consider pension contribution rates which strike the right balance between providing improved retirement outcomes for all but do not have a detrimental impact on working life incomes.’