On the go: Some savers’ pension contributions will need to sit at slightly more than double the current minimum automatic enrolment threshold in order for them to have a “living pension”, according to new research.
The Living Wage Foundation report covered workers who are either not saving towards a workplace pension or who are saving through a defined contribution scheme.
The research included workers who had previously contributed to a defined benefit pension but who are now paying into a DC pension, but not those who are currently paying into a DB scheme.
The LWF is developing a benchmark rate of pension contributions that it believes is needed for savers to afford “an acceptable standard of living in retirement”.
It has called this the “living pension” and is considering two benchmarks for the concept.
A “whole career benchmark” would capture those who have been paying into a pension for their whole career and would need their contributions, including those of their employer, to sit at 11.2 per cent of their wage in total in order to have a living pension.
Savers would therefore have to see an increase of 3.2 per cent above the 8 per cent minimum auto-enrolment threshold.
It is also considering an “all age” benchmark, which refers to the average rate that would apply if all workers started saving at their current age, observing that savers and their employers would together have to contribute a total of 16.1 per cent. This represents just over double the minimum contribution for auto-enrolment.
Outside of those saving into a DB pension, more than four-fifths of workers did not meet any of the living pension benchmarks in 2020, the report said.
The report laid bare the contrast in pension saving between different pay brackets. In 2020, 86 per cent of those in the top weekly pay quintile were saving towards a pension, compared with just 27 per cent of workers in the bottom weekly pay quintile.
The research also revealed gaps in pension savings between sectors. The hospitality sector had the lowest proportion of savers at 39 per cent compared with the finance industry, 91 per cent of whom were saving into a pension.
The gap between the proportion of men and women saving into pensions has widened over the past decade, rising from 8 per cent in 2011 to 10 per cent in 2020. Seventy-one per cent of male workers were pension savers in 2020, compared with 61 per cent of female workers.
LWF director Katherine Chapman said: “The current cost of living crisis has hit low-paid workers hardest, and many are not only struggling to keep their heads above water today, but also worrying about an uncertain future.
“Sixteen million people are not saving at levels which are likely to prevent poverty beyond their working lives,” she continued.
“Today’s cost of living crisis risks becoming tomorrow’s pensions crisis.”
