The report, titled When and why do employees change their pension saving?, published today (February 23), found that even for employees aged 50 to 59, there is no relationship between increases in pay and contributing to their pension.
The IFS said neither big pay rises, paying off the mortgage, nor increased tax incentives result in employees increasing their retirement savings.
Laurence O’Brien, a research economist at IFS and an author of the report, said: “Many employees might baulk at the idea of devoting more of their pay cheque to their pension in today’s high-inflation environment.
“But when people do have extra cash available, either because of a pay rise, paying off their mortgage or their children leaving home, very few employees put any of this extra cash into their pension.”
The IFS said this means many older employees in particular are missing out on an opportunity to boost retirement income at a point when their disposable income is likely to be high and spending commitments relatively low - with many having paid off their mortgage and/or no longer incurring expensive childcare costs.
O’Brien said: “Given concerns that many private sector employees are at risk of under-saving for retirement, a natural question is whether changes to public policy could help them increase their pension saving when it makes more financial sense to do so.
“For example, higher default employee pension contribution rates at higher levels of earnings, particularly above the higher-rate threshold, or at older ages could help many make better saving decisions.”
The report also found that there is little evidence of people increasing their pension contribution rates by a significant amount upon paying off a mortgage.
The average increase in pension contributions over the course of two years is not significantly different between those employees who have paid off their mortgage and those who continue to make mortgage repayments.
Similarly, nor does a child leaving home affect pension contributions, despite this often being a point at which spending commitments fall.
On the other hand, there is evidence that some employees tend to reduce their pension contribution rates after the arrival of a first child, when spending pressures increase. But even then the magnitude of this effect is modest
The incentive to save in a pension increases for most people upon becoming a higher-rate taxpayer.
This is because each pound saved in a pension saves 40p of income tax today for higher-rate taxpayers, compared with just 20p for basic-rate taxpayers.
