Around 11.6m workers risk not being able to afford a basic standard of living in retirement, according to Scottish Widows.
Its latest ‘Retirement Realities’ report, looking at unlocking workplace benefits, found that 20 per cent of full time employees face poverty in retirement and over a third (34 per cent) of part-time workers.
This is according to the National Retirement Forecast (NRF), a model created by Scottish Widows and Frontier Economics to estimate the potential retirement outcomes for people aged 22 to 65 based on their savings and spending behaviour.
The picture is bleaker for part-time workers as they are more likely earn below the £10,000 trigger for automatic enrolment, so may have less in workplace pensions.
Workplace pensions are expected to make up 63 per cent of employees’ retirement income according to Scottish Widows’ research.
While auto-enrolment has helped millions of workers into workplace pension schemes, Scottish Widows says this research shows there is a need for default contribution rates to rise to meet increasing living costs.
It says that low contribution rates aren’t the only reason many workers are off course when it comes to building savings for the future, with clear gaps in engagement and understanding also contributing.
It says over a third (38 per cent) of employees have little to no understanding of the pension-related benefits their employer offers. This lack of understanding persists despite support being offered by employers.
Over two in five (45 per cent) firms surveyed provide regular information and support to help employees make informed pension decisions and 41 per cent take an active role in educating employees to engage with their pension, rising to 47 per cent in large firms.
Even in larger firms where this kind of support can be more extensive, employee understanding remains low, with 38 per cent of employees in larger corporates having little to no understanding, rising to 41 per cent in small firms and dropping to 36 per cent in those medium sized.
The opportunity for increased engagement is clear, as one in 10 firms said their employees aren’t engaged with their pensions, rising to 20 per cent in smaller firms employees between 10 and 49 employees.
According to the latest estimates from Pensions UK, a minimum retirement lifestyle would cost a single person outside of London £13,400 per year in today’s money – excluding housing costs – leaving retirees with minimal funds after basic living costs.
Scottish Widows managing director of workplace and intermediary wealth Graeme Bold sys: “A workplace pension can be the most powerful tool people have to shape their financial future, but low engagement is holding people back from taking their best shot at long-term saving.”
He adds that the firm is trying to boost engagement through its app. “We’ve reimagined how customers interact with their pension in our app to make it part of their everyday finances, tracking progress, connecting other financial products in one place and using gamified tools to help them make decisions that will really count later in life.
“There’s a broader opportunity for pension providers, employers and those managing employee wellbeing to help them make the most of this workplace benefit. The government must also look at supporting part-time workers and lower earners with the expansion of auto-enrolment.”