Nearly three in five defined contribution (DC) pension savers will enter retirement with savings below expectations or below an adequate level, according to analysis by Phoenix Insights.
Phoenix Group’s longevity think tank’s report Tomorrow’s problem? Analysing the future impact of DC pension undersaving is based on responses of around 16,500 UK employees aged 25 and over. Undertaken with Frontier Economics, it groups future retirees into categories to estimate if they are saving enough to meet their future needs based on the Pension and Lifetime Saving Association (PLSA) retirement living standards.
The research found that the years 2040 to 2044 will see the highest number of financially struggling or undersavers reaching retirement. Three-fifths (59%) of all new DC savers retiring during this period fall into these two categories, equivalent to 2.67 million people.
Between 2025 and 2060, more than half (54%) of retirees with a DC pension are projected to be either undersavers expecting at least the PLSA’s minimum retirement income standard but not on track to achieve expectations, or financially struggling and expecting a retirement income below the minimum standard.
The analysis found that this group are predominantly born in the 1970s, female, working full-time, earning below £80,000, with about half earning below £20,000, and expecting to retire between the ages of 66 and 70.
Patrick Thomson, head of research analysis and policy at Phoenix Insights, said: “We are already reaching the stage where the majority of people with a DC pension will enter retirement with either less than they expect, or less than they need in terms of a minimum living standard. This situation is set to worsen over time and peak in the next 20 years.
“There is an urgent need to address undersaving to better support people achieve financial security later in life. Immediate policy interventions should include a plan to increase minimum auto-enrolment contribution rates when the economic conditions allow. This should go hand-in-hand with policies to make work more sustainable and accessible for the over-60s, so people can continue to earn and save later in life.”
