Pensions minister Guy Opperman has told MPs that around 12mn people are under-saving for their retirement, accounting for 38 per cent of the nation’s working age population.
The revelation surfaced in a letter to Work and Pensions Committee chair Stephen Timms, whose committee is carrying out an inquiry into “saving for later life”, which is examining pensions adequacy, including specific focus on the gender pensions gap and gig economy workers.
Timms had asked the pensions minister, in a letter dated July 20 2022, to provide an estimate for retirement under-saving. Opperman was also asked whether he thought the resulting level was acceptable and, if not, to what level he would like to see this reduced.
The select committee chair also asked Opperman whether he had considered using a power in the Pensions Act 2008 to clarify the definition of a worker for the purpose of automatic enrolment, after the Pensions Regulator’s chief executive, Charles Counsell, said in July that the legal position of workers was unclear.
The minister was also asked to provide an estimate of the gender pensions gap, along with his plans for the routine collection and publication of this data.
The inquiry received responses from employers and schemes, as well as Richard Fuller, the economic secretary to the Treasury.
Recognising the role of personal responsibility
The government remains under pressure from the pensions industry to implement the recommendations of its 2017 auto-enrolment review, which include lowering the minimum age for enrolment from 22 to 18. Opperman has directed that the auto-enrolment reforms should be achievable by 2025.
The minister’s estimate for pensions under-saving was based on modelling used for the 2017 auto-enrolment review. “Without the introduction of AE, an additional 2mn individuals — a total of 14mn individuals — were estimated to be under-saving,” he claimed.
Opperman added that many savers will “be close to their target pension income”. For example, of the 1.6mn under-savers in the two lower earnings bands, just over half are within 20 per cent of their target pension income, as defined by their target replacement rate.
He said that the introduction of auto-enrolment was estimated to reduce the proportion of young under-savers from around 48 per cent to 36 per cent, and the proportion of under-savers in the lowest pre-retirement earnings bands to 11 per cent.
“This is significant progress, and we continue to explore ways of supporting provision and contributions to reduce under-saving, in addition to the 2017 review ambitions that we have committed to implement in the mid-2020s, and building on the pension reforms recognition of the role of personal responsibility to save on top of that minimum rate,” he continued.
HMRC systems ‘are not designed to collect pension contributions’
Pensions adequacy for the self-employed remains a source of concern, and in July TPR told the Work and Pensions Committee that it was working to give gig economy workers access to pensions.
Uber told the inquiry in its own response that it has around 97,000 drivers enrolled into a scheme launched in September 2021. It cited flexibility as an attraction for driving for Uber and pointed to a Public First report, which found that drivers would choose to retain their flexibility over receiving 50 per cent higher earnings.