The majority of defined contribution pension savers will face lower retirement incomes than expected in the next five years, with this trend peaking in the early 2040s.
Phoenix Insights’ latest report, “Tomorrow’s Problem? Analysing the Future Impact of DC Pension Undersaving,” warns that in less than two decades, nearly three in five DC pension savers in the UK will retire with insufficient or below-expected savings, leading to a crisis point.
The analysis with Frontier Economics categorises future retirees into five groups to assess if they are saving enough for retirement based on the PLSA retirement living standards.
More than half, or 54 per cent, of retirees with a DC pension are likely to either fall short of their retirement income projections or fail to reach the PLSA’s minimal standard between 2025 and 2060.
The research suggests that from 2040 to 2044, 59 per cent of new DC retirees, or 2.67 million individuals, will be “financially struggling” or “undersavers.”
According to the data, this group consists primarily of women born in the 1970s who work full-time, earn less than £80k, with around half earning less than £20k, and aim to retire between the ages of 66 and 70.
Phoenix Insights head of research analysis and policy Patrick Thomson says: “The analysis paints a bleak picture of future retirement incomes. We are already reaching the stage where the majority of people with a defined contribution pension will enter retirement with either less than they expect, or less than they need in terms of a minimum living standard. This situation is set to worsen over time and peak in the next 20 years.
“There is an urgent need to address undersaving to better support people achieve financial security later in life. Immediate policy interventions should include a plan to increase minimum auto-enrolment contribution rates when the economic conditions allow. And this should go hand-in-hand with policies to make work more sustainable and accessible for the over-60s, so people can continue to earn and save later in life.
“The plight of retirement incomes is clear to see, but we have a golden opportunity to take meaningful action to turn the tide in undersaving and improve the retirement prospects of future generations. These really aren’t tomorrow’s problems anymore.”