Figures released today show that almost half the population aged below retirement age had no private pension savings in 2010-2012.
New figures show that almost half the population aged below retirement age had no private pension savings in 2010-2012
Few people in Britain today are able to enjoy the quality of life they would like in retirement if they have to live on the state pension alone.
And, despite the ‘triple lock’ that guarantees the state pension will increase in line with whichever is the highest – average earnings inflation, price inflation and 2.5 per cent – that is likely to remain true in the future.
If people want to live a comfortable life in retirement, they will need to save into a private pension.
However, figures released today by the Office for National Statistics show that almost half the population of Great Britain aged below retirement age – 45 per cent of men and 49 per cent of women – had no private pension savings in 2010-2012.
These figures are a bit exaggerated because they include young people from the age of 16, some of whom will not yet have started work. But if we only look at people aged between 25 and retirement age, it is still the case that just under 40 per cent do not have any private pension savings. This is a truly shocking statement.
Deeper analysis shows that a person is more likely to have pension savings if they are older, have higher qualifications, work as a manager or in an intermediate role, have relatively high earnings and are in the public sector. People with pension saving are also more likely to have other forms of wealth, particularly property wealth.
Young people with few qualifications doing low-paid routine work in the accommodation and food services industries and in administration and support services are least likely to have pension savings.
The industrial analysis reveals the most striking differences in proportions of people with private pensions. Fully 95 per cent of people working in the accommodation and food services industries do not have a pension; and the same is true of 85 per cent of men and 87 per cent of women in administration and support services.
At the other extreme, over 90 per cent of people working in public administration, defence and social security have a private pension.
These figures are based on the ONS’s Wealth and Assets Survey, which covered the period from July 2010 to June 2012. Therefore, they pre-date the introduction of automatic enrolment, which requires employers to automatically enrol staff into a pension scheme, starting with the largest employers in October 2012.
They will, therefore, act as a benchmark by which to judge the success of this policy. If it is working, future surveys will find smaller proportions of people with no pension savings. Early indications are that opt out rates among employees who have been automatically enrolled into a pension are lower than anticipated, suggesting there is some hope of a successful outcome.
Of course, it is one thing to have private pension savings and another to be saving sufficient to build up a large enough pension pot to make a real difference to life in retirement. Critics of auto-enrolment argue that contribution rates are too low.
The recent growth in the proportion of working people who are self-employed might also negatively affect pension saving. The ONS’s analysis found that 46 per cent of men and 50 per cent of women who are self-employed had no private pension, compared to a third of employees.
The shift into self-employed, therefore, is likely to mean fewer people with a private pension.
Tony Dolphin is chief economist at the Institute for Public Policy Research (IPPR)