The first ten years of auto-enrolment have boosted private pension coverage and savings but a recent analysis from the Resolution Foundation is urging a focus on flexibility in pension savings over the next ten years to address the issues of low, middle, and high earners.
The report, Perfectly Adequate?, evaluates whether different income groups are saving enough for retirement and references benchmarks set by the Pensions Commission 20 years ago. It reveals that although many can rely on other financial assets, middle-class and upper-class earners may struggle while low-earners are on pace to fulfil their targets.
The Foundation suggests bumping up default contribution rates from 8 per cent to 10 per cent and putting extra money in easily accessible savings accounts instead of straight into pensions. This would enable low-income workers to save for emergencies while continuing to make pension contributions.
The report also suggests that the government should take into account targeted increases in contribution rates in order to assist middle-class and upper-class residents.
The Foundation argues that in order to raise retirement living standards and solve the problem of insufficient savings at all income levels, the success of auto-enrolment should be expanded upon.
Resolution Foundation economist Molly Broome says: “Twenty years ago, and amid widespread concerns about poverty in later life, the Pensions Commission set benchmarks for how much people would need to save during their working lives to enjoy a decent income in retirement.
“Policies like the New State Pension, triple lock and auto-enrolment have delivered on their objective of giving everyone a decent minimum level of retirement income. But the job is incomplete. And so the new Government’s Pensions Review, which could set policy for the next decade, should focus on tackling the different savings challenges that low, middle and higher earners face.
“As well as continuing to boost pension saving, auto-enrolment also needs to be more flexible. It should allow low earners to build up rainy day savings that they can draw on before retirement, while higher contributions for higher earners could help them get closer to maintaining their level of living standards into retirement.”
