DC study finds too few are saving enough

People are not saving enough to achieve an adequate level of income in retirement despite the positive effect of more people saving through auto-enrolment, Daniela Silcock has said.

The head of policy research at the Pensions Policy Institute revealed in the first publication of an annual compendium of DC statistics that more people were saving in private pensions and that DC provision had overtaken defined benefits in the private sector.

She said: “However, while more people are saving in a private pension, saving levels are not yet high enough for many to achieve an adequate level of income in retirement.”

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PPI’s analysis indicated that median pot sizes for those reaching state pension age could grow from £14,100 for those aged 55 to 64 in 2015 to approximately £56,000 for those aged 35 to 44 in 2015 (2015 earnings terms).

While £56,000 is significantly higher than £14,100, and may seem a sizeable pot, the report warned that this was “unlikely on its own to provide sufficient income to support an individual’s retirement”.

Furthermore, by 31 August 2015, 5.2m workers had been assessed ineligible by employers going through the auto-enrolment process.

The 79-page study, The Future Book: Unravelling Workplace Pensions, warned the industry to be aware of changes occurring within the DC world. It said: “Greater numbers of DC savers, coupled with flexibility, will increase the level of risk that people with pension savings face at and during retirement. It is important that comprehensive statistics and analysis of DC pension trends are available to help monitor and inform future policy.”

Campbell Fleming, chief executive of Emea at Columbia Threadneedle Investments, which supported the publication of the document, said: “The Future Book paints the most accurate picture yet of the UK DC market. It is clear that more people than ever are responsible for their own retirement provision and at risk of making the wrong decisions in the face of complex investment choices and market/longevity risks that are hard to quantify.”

Concurrently, the Association of Consulting Actuaries has warned that millions of workers have been enrolled into pensions since 2012 at minimum levels of combined employer and employee contributions of barely 2 per cent of total earnings.

The survey also suggested the success to date of auto-enrolling more than 5m into workplace pensions may be challenged by rising opt-out rates among smaller employers who have yet to auto-enrol their employees into pensions.

More than 50 per cent of the smaller employers who responded to the survey who had not reached their staging date currently offer no pension arrangement for their workforce.

Adviser view

Nick Allen, head of pensions consultancy for national firm Jelf Employee Benefits, said: “Coupled with the fact that employers now, or soon will, make pension contributions because of auto-enrolment, the combination of this and tax incentives makes investing into pensions an attractive option.

“The key is to communicate the value. Explaining the value requires education, and it makes sense for employers to invest in such education, not least to maximise the value of their spend on pension benefits.”