Up to 26m people may be failing to save enough for their retirement, under new projections compiled by the Department of Work & Pensions.
The figures were released under a freedom of information request by LCP partner and former pension minister Steve Webb.
The projections show the number of people deemed to be under-saving for retirement, should the triple lock on the state pension be removed in future.
Current projections by the DWP estimate that 14.6m people are ‘under-saving’ for retirement, but this assumes the triple lock remains in place for the next fifty yeas. Webb points out that few expect this to be the case given the high cost on the public purse of delivering this.
If the triple lock is removed and the state pension uprated solely in line with inflation, as was the case before 2010, this would leave 26m people failing to achieve a target income replacement rate. If the state pension is uprated in line with average earnings each year this projection suggests 19m people would be deemed to be under-saving for their retirement.
Webb says these “shocking figures” reveal that the true state of under-saving for retirement in Britain is far greater than has previously been thought.
He says: “Very few people expect the triple lock to continue for another fifty years, yet this is the basis on which the Government has so far published estimates.”
Webb points out that these figures come just ahead of the Budget, where it is widely expected that the Chancellor will retract the among that people can save into salary sacrifice schemes — which could act as a further brake on the amounts people are savings into pensions.
He said: “These numbers not only inform the debate about the future of the triple lock but also the forthcoming Budget, where it is widely rumoured that the Chancellor will raise up to £2 billion by cutting back on workplace ‘salary sacrifice’ schemes for pensions. Such a measure would further undermine pension saving when these figures show that the true state of under-saving is already far greater than previously revealed.
“Against this backdrop, the Chancellor should be taking measures in the Budget to boost pension saving, not undermine it.”
There are a number of different formula used to calculate whether people on track for an adequate retirement. One is a ‘target replacement rate’: basically a median earner should be able to replace about 67 per cent of their pre-retirement income when they retire; the lowest earners need to replace 80 per cent of their income post-retirement on this benchmark, and the highest earners need to replace 50 per cent.
It is by using this assumption that the DWP estimates that 14.6m are ‘under-saving’ for retirement, although this assumes the triple lock remains in place.
There are also estimates as to how many people are on track to meet a “minimum” or “moderate” standard of living, as set out by Pensions UK’s retirement living standards.
Again these figures would also rise sharply if the triple lock was to go. On current pension projection 4.6m people won’t meet ‘minimum’ living standards on current savings rates, and 25.4m will fail to have a ‘moderate’ standard of living.
If the state pension was uprated in line with average earnings 6m would fail to meet minimum living standards, and this would rise to 11.7m if the state pension was uprated with inflation.
The numbers failing to meet ‘moderate’ living standards would rise to 26m if the state pension is uprated with earnings and 28.8m if it is indexed in line with inflation.
