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Savers unlikely to get a decent retirement income

Savers unlikely to get a decent retirement income

Category: Pensions

Updated: 22/10/2013
First Published: 22/10/2013

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Average earners have less than a 50/50 chance of achieving a decent retirement income under automatic enrolment, the Pensions Policy Institute (PPI) has warned.

A new report, published today by the independent think-tank, examined the likelihood of an average worker in the auto-enrolment scheme who makes the minimum contribution of 8% achieving an "adequate" income during retirement.

With "adequate" being defined as two-thirds of a saver's pre-retirement earnings, the report found that average earners would only have a 49% chance of achieving that target.

This has led the PPI to urge the Government to increase minimum contribution levels so savers don't face a retirement shortfall. But, it stressed that it would also need to consider some kind of compulsion or mandatory savings policy to ensure people don't opt-out as a result of those higher contributions.

Chris Curry, director of PPI, said:
"The analysis shows that the outcomes from being automatically enrolled into a defined contribution workplace pension are highly uncertain.

"In general, individuals will need to contribute more than the minimum level at which they are likely to be automatically enrolled to have a good chance of achieving an adequate retirement income.

"[However] Higher minimum contribution rates could lead to large numbers of people opting-out of pension saving, contradicting the goal of the automatic enrolment policy.

"Therefore, some form of compulsion by making saving into a workplace pension mandatory might need to be considered."

The findings have led experts to suggest that savers need to take responsibility for their own retirement, perhaps by voluntarily contributing more or setting up a separate pension or savings account, ensuring they can generate a decent income and won't have to work into their 70s.

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