UK Pensions Commission warns 15 million Britons not saving enough for retirement

The government-backed Pensions Commission has issued an interim warning that at least 15 million Britons are not saving enough for retirement, signaling the scale of the challenge ahead. Final recommendations are not due until next year, but the commission highlighted that increasing longevity makes the issue of retirement incomes unavoidable. Within the next decade, projections indicate there will be three pensioners for every 10 working-age adults.

The decision to reconvene the expert group was widely praised. The automatic enrolment system it previously proposed has been a success, with about 90% of eligible employees signing up since 2012 alongside their employers. However, millions of low-paid workers and the vast majority of self-employed people face an uncertain future unless they receive help to plan and save. The Institute for Fiscal Studies (IFS) suggested that HM Revenue and Customs could oversee a system enabling self-employed taxpayers to make pension contributions at the same time they pay their tax bill.

Of the system’s three pillars—auto-enrolment, the state pension and voluntary individual saving—the commission judged the last to be the weakest. One concern is whether people are saving enough to supplement their state pension, currently £241.30 a week, to a level that ensures a satisfactory retirement income. Another is how these additional savings are managed. Since no one knows exactly how long they will live or what their needs will be, even financial experts find decisions difficult. The report implied that changes made under the Conservatives designed to boost pensioner freedoms were ill-advised, as UK retirees have far greater flexibility than their peers in most countries, and those withdrawing lump sums risk depleting their savings too quickly. A rebalancing toward a more cautious default is likely among next year’s recommendations.

Inequalities of various kinds also require attention. The gender pensions gap is far larger than the pay gap: women approaching retirement hold half the savings of men on average, with a median of £81,000 versus £156,000. The commission indicated that policies to tackle this disparity will be a priority. While the retirement age has been equalized, women’s greater longevity means the average woman needs to support herself through retirement longer than the average man. Some ethnic groups are also overrepresented among those with inadequate savings.

The commission’s remit excludes the triple lock used to uprate the state pension, and this report does not address it. Any change during this parliament is highly unlikely. However, the IFS noted that raising the pension age again to rein in costs would disproportionately benefit the wealthiest pensioners, who live the longest, while poorer pensioners would see their retirements shortened further.

The warning of a savings shortfall must be treated seriously. Pensioner poverty has fallen in recent decades relative to poverty in other age groups and must be prevented from rising again. Nevertheless, the success of auto-enrolment provides reason for cautious optimism about what comes next. Unlike the impasse over social care funding, the pensions system has shown a capacity to adapt.

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