A new study by the Institute for Fiscal Studies (IFS) has revealed that up to seven million British pensioners are facing a “grim retirement” due to insufficient pension savings.
The research highlights a potential crisis for the UK’s current workforce, with a significant portion of private sector employees at risk of falling short of comfortable earnings benchmarks in their retirement years.
According to the IFS report, between 30 and 40 per cent of workers with defined contribution pension plans may struggle financially in later life.
Some 20 per cent of employees are not saving any money in a pension pot at all while less than half are putting away more than eight per cent of their earnings for retirement.
In response to this pension savings shortfall, the IFS is putting forward several proposals to remedy the crisis.
It suggests employers should contribute three per cent of total pay into workplace pensions, even if employees don’t contribute themselves.
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Britons are looking for the best ways to bolster their retirement prospects
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For higher earners, the study proposes a higher “default” contribution rate of seven per cent.
This aims to help middle and higher-income workers supplement their state pension.
Laurence O’Brien, an IFS research economist and report author, explained: “Too many private sector employees appear on course to end up on a low – or disappointing – retirement income.”
These recommendations seek to bolster pension savings and ensure more workers can enjoy financial security in retirement.
David Sturrock, another report author, added: “There is a strong case for almost all employees to receive an employer pension contribution, irrespective of whether they make a contribution themselves.”
Mubin Haq, chief executive of the abrdn Financial Fairness Trust, adds: “Guaranteeing 3 per cent from the employer regardless of whether an employee makes a contribution could boost employer pension contributions by £4billion per year.
“This would particularly benefit women, those working part-time, young adults and the low-paid.”
Tim Gosling, head of policy at People’s Partnership, welcomes the focus on affordability for lower earners, stating: “Workplace pension policy has to work at all points in the earnings distribution.”
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Pensioners may have to wait longer for payments GETTY The Department for Work and Pensions (DWP) has responded to the IFS report, outlining plans to improve pension outcomes.
A DWP spokesperson said: “We will ensure the pensioners of tomorrow have the dignity and security they deserve in retirement as we carry out our landmark pensions review to boost investment, increase pension pots and tackle waste in the pension system.”
The spokesperson highlighted the potential benefits of the new Pension Schemes Bill.
“More than 15 million savers could benefit from our new Pension Schemes Bill – with the potential for an average earner to have £11,000 more in their defined contribution pot by retirement,” they added.