Majority of people not saving enough for retirement, MPs warn

A decade on from the launch of automatic enrolment in workplace pensions, more than 60% of people are still not saving enough for their retirement, the Work and Pensions Committee says.

Minimum contributions to pensions are too low and are not enough to give an adequate living standard, according to a report by the committee. Meanwhile, many self-employed and gig economy workers are excluded from pension saving altogether.

Analysis by the Pensions Policy Institute shows that only 39% of households and 37% of individuals are on track for an adequate pension according to the definition used by the Pensions Commission.

Currently, the minimum contribution under auto-enrolment is 8% of eligible salary, made up of at least 3% from employers and the remainder coming from employees and tax relief.

People in their 40s and older are most at risk if they do not have access to a defined benefit pension, as they have had limited time to build up a pension through auto-enrolment, the report explained.

The committee said it recognised that the current cost-of-living crisis is not the time to ask people to pay more into their pensions, but it urged the UK government to draw up a plan for introducing higher minimum contributions to workplace pensions in the future.

"While automatic enrolment has been successful in boosting participation in workplace pension saving, many people will be feeling a false sense of security holding on to the idea that putting away the minimum amount will be enough to enjoy a fulfilling retirement," said Sir Stephen Timms, chair of the Work and Pensions Committee.

"The blunt truth is that many employees need to save more but do not realise it. The government must urgently consider how to boost saving, including examining the case for increasing minimum contributions, before it is too late."

Sir Stephen added that the self-employed and some gig economy workers are at "real risk of being left behind in retirement" unless the government takes action to ensure they have access to auto-enrolment or similar schemes.

How much do you need to save for a good standard of living in retirement?

The average retired couple in the UK has a pension income worth £284 per week, including both occupational and private pension income and excluding state pension income, according to research by Standard Life.

The pensions, savings and investment company said that those approaching retirement who have a similar weekly income target in mind would need to have amassed £267,000 in retirement savings to buy a 'level' annuity which would guarantee this income for life. For income that increases in line with inflation, the figure is a much larger £432,000.

Meanwhile, the top fifth of pensioner couples have pension incomes of £704 per week on average, requiring a savings pot of £650,000 to secure the same type of annuity and guarantee their income for life -- or £1,067,000 to buy an index-linked annuity.

Standard Life's analysis also found that over the last decade the average income of retired couples has increased by around 7% in real terms.

"Thinking about the amount of money you need to retire can be daunting, but it's important to have a savings target in mind to fit your desired lifestyle in retirement, that you can work towards," said Jenny Holt, managing director for Customer Savings and Investments at Standard Life.

"It is encouraging that over the past 10 years pensioners' incomes have increased in real terms. However, in the current environment with inflation having recently reached double figures, there is an increased challenge of making money last. So, even while we are in a challenging situation which can lead to a focus purely on short-term finances, if you're able to continue paying attention to your long-term pension savings, it will be extremely worthwhile by the time you come to retire."