Britain’s vote to leave the EU will result in 75 per cent of defined contribution savers failing to meet their retirement income targets, research by Hymans Robertson has suggested.
The prediction represented a 10 per cent increase on pre-Brexit projections, making the current outlook for DC savers the worst it has ever been, according to the pension consultant. It found some savers would now have to put aside 22 per cent of their income in order to achieve a comfortable retirement.
Hymans monitored the accounts of 500,000 DC scheme members to arrive at its gloomy forecast and using investment return projections measured the projected retirement outcome against the Pension Commission’s retirement income replacement ratio.
Chris Noon, partner at Hymans Robertson, described the figures as “dire reading for UK savers who are working towards their retirement”.
“Before Brexit we were already in a situation where two thirds of savers were not saving enough for retirement and were set to have inadequate incomes during retirement. As a result of the referendum vote, this now goes to a level not seen before, with three quarters of savers set to struggle in retirement,” he said.
“Many savers are now faced with a difficult choice. In order to make up the difference they must either significantly increase the amount that they contribute to their pension or retire much, much later.”
He added that Brexit had increased the chances that the state pension eligibility age will rise beyond 70, forcing people to work longer.
Mr Noon said the future of long-term savings had “an amber warning to red”, and urged the government to set up an independent pensions commission to “strip the politics away and ensure future policies and changes put the saver at the heart and make an adequate retirement income more achievable”.
Alan Chan, a chartered financial planner and director of IFS Wealth & Pensions, said the 75 per cent was higher than he would have expected.
But he added that auto-enrolment contribution levels - both the current 2 per cent, and the soon-to-be-introduced 8 per cent - were utterly insufficient.
“For anyone who is thinking they can pay in the minimum and still retire at 65, [Hymans Robertson’s] figures are probably right.”
He said he agreed “completely” with the idea of an independent commission, saying: “We’ve seen more change over the last two years than we saw in the previous decade. People are losing confidence in the system.”
james.fernyhough@ft.com
