Many working age people in the UK could secure a financially comfortable retirement by making some small changes to their saving habits, according to new research published by the Department for Work and Pensions (DWP).
Government
Government action to transform British pensions has brought about radical improvements to the retirement prospects of future pensioners.
However millions are still not saving enough to ensure they can maintain their standard of living into old age.
They estimate that 11.9m people in the UK need only to make modest changes to safeguard their financial future.
Reforms
The research finds that landmark reforms of the State Pension system, working to reinvigorate workplace pension schemes and efforts to help older job-seekers get back into employment, are all playing a crucial role in tackling the problem of under-saving.
The introduction of the triple lock – the commitment to increase the state pension by whichever is highest out of earnings, prices or 2.5% – has also made a major impact.
On the right path?
80% of the 11.9 million are already on the right savings path and could safeguard their financial future by putting away just a little more.
Change of focus
The reforms have had the biggest positive impact on lower earners.
Now attention is turning to people in middle and higher income groups. It is this group that now face the biggest income hit when they give up work.
More findings
The research finds that higher income groups could benefit significantly from higher contribution rates.
It also recognises the danger that, if set too high, these could prove punitive for lower earners and encourage more people to opt out of workplace pensions.
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 without having a detrimental impact on working life incomes.
3 key factors
The DWP research highlights three key factors leading to poor retirement income prospects:
- Not having a full work history can result in a reduced entitlement to the State Pension (because of insufficient National Insurance contributions) as well as a reduced capacity for private pension saving. This factor is most typical amongst lower-income groups.
- Not contributing to private pensions while in work, which is more typical of people in the middle-income groups.
- Not contributing enough to private pensions to generate a large enough retirement income, which is more typical of people in the higher-income groups.
Our view
The research document sets out the scale of the savings challenge facing the UK, as the average age of the country’s population continues to rise.
This is an area that needs serious and concerted attention.
It is to all our benefits in the end.
Sources: https://www.gov.uk/government/news/take-action-now-to-safeguard-your-retirement-pensions-minister