6 techtalk

ADEQUATE AND INADEQUATE SAVERSThis year, 56% of consumers met our definition of adequate saving, which is the first time it’s broken out of the band of 45% to 55%. As in the past, men are saving more on average than women (figure 2), and that applies even to those at similar income levels. Over-50s save better than under-50s (62% against 54%). 28% believe their main income in retirement will come from a defined benefits pension, a figure which unsurprisingly has been declining steadily.

Figure 2

19% of people are saving nothing at all for their retirement, and this figure has hardly moved in recent years. The improvements have almost all come from people increasing their savings rates, rather than starting to save. One of the key measures of the remaining roll-out of automatic enrolment will be whether it prods habitual non-savers – who largely work for small employers – to start some preparation for retirement. Most say they can’t afford to save anything (see Figure 3) but the incentive of an employer contribution, or simply lethargy when they are automatically enrolled, may change that view.

Figure 3

Another recurring feature of our research is that the group with the highest average income is those saving up to 6% of their income each year. High earners almost always have some savings, but often it is little more than a token effort, with around one in five of those earning over £50,000 saving under 6%. Unless they have other resources to use in their retirement, they could see a substantial drop in their living standard.

Looking at occupational factors, public sector workers are understandably the best provided for because of the continuing prevalence of defined benefit schemes, meaning that two-thirds (67%) are preparing adequately. At the other end of the spectrum, only 38% of the self-employed are saving enough, and that’s even with 20% feeling their main income will come from a former employer’s defined benefits scheme. Company size is a very important factor, with 68% of those employed by companies with 4,000 or more staff preparing adequately, but only 41% of those whose companies have fewer than 50 staff.

RECOMMENDATIONSOur report made a number of recommendations for the future:

1. A comprehensive reform of pension tax relief to develop a system which is less complex, and incentivises low and average earners to save more. This is now happening following the summer Budget, though we don’t claim all the credit for that!

2. After that, a period of calm to embed the new pensions landscape in the minds of consumers. The public need the chance to digest the new pension rules, and educate themselves about the options now available to them, in order to make crucial decisions about their financial future.

3. A significant reduction to the automatic enrolment earnings trigger, and contributions based on full salary rather than band earnings. This would benefit lower earners, including many women.

4. Life-long financial education, and innovative use of technology to enable good quality independent advice at an affordable cost for lower earners.

There is no single measure that will dramatically improve levels of saving for retirement, but if these recommendations are implemented they can build on the good work already done, including automatic enrolment, pensions freedom and state pensions reform, and enable more people to look forward to a financially secure retirement.

60%of men are

saving adequately

52%of women are saving adequately

1/5people don’t

save anything

2/3of those say they

can’t afford to save anything