Almost half of workers cannot afford to save for retirement

Inflation in particular has seen living costs rise, although the PLSA survey, which polled 2,093 adults, found that people still recognised the importance of long-term planning despite short-term pressures.

Around a third (31 per cent) of respondents said they had spent some time over Christmas reviewing their finances, including their pensions. This included 41 per cent of those aged between 18 and 34 and 24 per cent of those aged over 55.

Despite fears about costs, the industry body still argued that the government should increase the auto-enrolment contribution rate from 8 per cent of a band of earnings to 12 per cent of all salary before the end of this decade.

It said this should be accomplished by an even split, with employers paying 3 per cent more than at present and employees paying just 1 per cent more — unless they cannot afford it, in which case they should be given the option of remaining at the current 5 per cent level.

Just under half (41 per cent) of respondents to the survey agreed that pension contributions should rise, while 16 per cent disagreed.

The survey did find, however, that only a third of individuals know the minimum contribution rate under auto-enrolment, while 39 per cent were unsure whether the government gives tax relief on pension contributions, and 31 per cent did not know if their pension was invested in stocks, bonds or other investments.

Around a third (32 per cent) said they could afford to contribute more to their pensions, while 78 per cent of those not retired thought it was a good idea to pay into a workplace pension.

Nigel Peaple, director of policy and advocacy at the PLSA, noted that “many savers face substantial financial difficulties over the short term due to the Covid-19 pandemic, but over the longer term the public see the value of saving towards retirement in a workplace pension”.

“Moreover, while half of those responding to our survey say they cannot afford to save more now, a third do consider themselves able to do so,” he said.

Peaple argued that “many people do not fully understand the complexities of pension saving, so it is important that the government’s policy on pension saving takes account of this”.

“In particular, alongside industry measures like the retirement living standards, which help people understand how much different lifestyles cost in retirement, the rules of automatic enrolment should be designed to give people an adequate income,” he said.

“We therefore support the government’s promise to extend pension saving to younger people in the mid-2020s and to increase the amount of saving so that it is on the first pound of salary.

“But it is also important that the government ‘levels-up’ pensions, so that by the end of the decade pension contributions are increased from 8 per cent to 12 per cent, split evenly between employers and employees,” he added.