The Living Wage Foundation has launched the Living Pension employer standard, a voluntary programme for employers who wish to address low levels of pension saving among lower paid workers.
The Living Pension targets savings of 12 per cent of a worker’s annual salary, of which the employer will contribute at least 7 per cent.
This is a figure many in the industry are campaigning to move auto enrolment towards, which currently requires the employer to contribute only 3 per cent.
The framework allows for the savings target to be implemented as a cash amount of £2,550 a year, based on 12 per cent of a real Living Wage worker’s salary. The employer would be responsible for at least £1,448 of this cash amount.
The living wage is currently £11.95 for London and £10.90 for other parts of the UK. The national minimum wage is currently £9.50 for those over 23, which will rise to £10.18 in April.
The campaign was prompted by research from the Resolution Foundation in 2022 which found that four in five workers (80 per cent, or 16 million people) who save into defined contribution (DC) schemes, and 95 per cent of low paid workers, were not saving enough to meet their needs in retirement.
Bleak future
New research from the Living Wage Foundation found that more than half of pension savers (56 per cent) feel they will never be able to retire.
The survey, of more than 3,000 UK pension savers, also found:
- 64 per cent feel they will need to work several years beyond retirement;
- 37 per cent are not confident that they are saving enough to meet even basic needs in retirement;
- 9 per cent stopped or reduced contributions in the last six months;
- 8 per cent plan to cut pension contributions in the next 6 months;
- 42 per cent of those who cut contributions blamed rising living costs.
Katherine Chapman, director of Living Wage Foundation, said: “Low pension saving levels are a long-standing issue and our research shows that workers are worrying about an uncertain future. The current cost-of-living crisis is exacerbating the problem.
“Struggling to make ends meet as living costs soar, many workers are unable to prioritise pension saving, which risks storing up a future crisis of millions unable to afford even the basics in retirement.”
The Living Wage campaign has grown in over the past decade. It is now paid by more than 12,000 employers, providing essential pay rises to more than 450,000 workers each year, said Chapman.
“The Living Pension builds on this by encouraging employers to do more to help their workers build a pension pot that meets basic everyday needs in retirement, providing stability and security for workers now, and in the future.”
Doing the right thing
Alison Brown, executive partner at Herbert Smith Freehills, said the cost-of-living crisis has highlighted the stark difficulties faced by far too many individuals who struggle to manage financially on a daily basis. These challenges could worsen and many do not save enough for their future.
“Being a responsible employer is about more than ensuring staff are looked after while they work for you; it is about recognising that providing employees with stability and security in retirement is just as important.”
Mubin Haq, chief executive of Abrdn Financial Fairness Trust said that more needs to be done, despite the good progress has been made on pensions in recent years, such as the introduction of auto-enrolment and the triple-lock.
“Some might think job done, but we are storing up future problems as millions are not saving enough towards their retirement: four in five workers on defined contribution schemes are falling short of what they need to have a decent standard of living in old age.
“A living pension provides employers with a model to do the right thing and ensure their workforce are not facing hardship in the future.”
A cornerstone of benefit design
Paul Moffatt, a director at Isio and a member of the Living Pensions steering group, said the launch of the standard is a “milestone moment” for the industry.
“With more than 16 million workers not currently saving enough to meet the cost of living beyond their working lives, without an intervention like this, many will unknowingly be forced into poverty when they retire."
The Living Pension is a step in the right direction, said Moffatt, improving the long term financial wellbeing of employees, and particularly the lowest paid.
It is a pragmatic design that can be easily implemented to promotes fairness and transparency and should become “a cornerstone of benefit design for organisations who are passionate about inclusion”.
Moffatt added: “Giving employees an understanding of the benefits available to them, including pension savings, and how these can be utilised to support their changing financial needs is something every employer should place at the heart of their benefits package.
“Doing so will only become more important as home-ownership, the largest driver of retirement needs, becomes less common for younger employees.”
Phil Brown, director of policy for the People’s Partnership welcomed the Living Pension’s launch, but called on the industry to work together on a holistic solution.
“When six in 10 people aren’t saving enough to live on in retirement, we absolutely support the intention behind initiatives like this, but multiple adequacy measures could be confusing for savers.
“We believe there should be an industry standard agreed, bringing together the fantastic work of organisations like the Living Wage Foundation and the Pensions and Lifetime Savings Association.”
Pádraig Floyd is interim editor of Pensions Expert
