A new international report has deemed that the UK’s workplace pension system does not provide adequate financial support to ensure today’s young workers will have a decent retirement income.
The report, produced by the International Longevity Centre UK (ILC-UK), warns that young British workers face a monumental savings challenge, if they are to have sufficient income in later life.
“The Global Savings Gap” argues that the UK pension system is “middle ranking on adequacy and intergenerational fairness”, when compared to other high-income economies, but adds that people will need to put much more of their earnings into savings to guarantee a decent living standard in retirement.
According to the report’s findings, young workers need to put aside 18% of yearly earnings to achieve an adequate income in retirement. This, however, would still mean they are two percentage points short (20%) of the income enjoyed by current retirees.
Dean Hochlaf , Assistant Economist, ILC-UK said: “The combination of persistently low returns, sluggish wage growth and a changing labour market means today’s young people will need to save more to enjoy their retirement.
“The government must do more to extend pension coverage and ensure that contributions towards private schemes are sufficient, especially amongst overlooked groups such as the self-employed and those on low incomes who have yet to benefit from initiatives designed to improve private savings”.
A seperate survey commissioned by the ILC and carried out by Ipsos MORI discovered that only 12.4% of people in the UK are saving more than 15% of earnings, while over 30% of people between the ages of 25-44 have no savings whatsoever.
Furthermore, only 9% of UK households surveyed by Ipsos MORI had a specific savings target for retirement, compared to around a third in the US and Singapore [29% and 33%] and over half in Hong Kong [59%].
Vince Smith-Hughes, a retirement income expert at Prudential, said:“As the ILC-UK analysis shows, action is needed now to further embed pension saving in to our workplace culture so that all, but in particular the younger, generations can look forward to a comfortable retirement.
“It’s long been our view that for most people, saving as much as possible as early as possible in their working life is the best way to ensure they have control over their financial futures and are well-prepared for a comfortable retirement.
“While speaking to a professional financial adviser can often help ensure that retirement planning is best suited to individual’s circumstances, we mustn’t forget that there is also a great deal of free impartial guidance out there from sources such as the Pensions Advisory Service or the government’s Pension Wise service.”