The report, titled Pensions Adequacy: Housing, Households and Auto-Enrolment, argues that Auto-Enrolment, while hugely successful at getting millions of people saving into a pension, was built around assumptions that no longer reflect modern working life. Rising numbers of renters in later life, changing family structures and more fragmented careers are leaving growing numbers of people at risk of falling short in retirement.
Building on the evidence presented in the Pensions Commission’s Interim Report, the research concludes that retirement adequacy can no longer be judged by pension savings alone. Housing costs, caring responsibilities and household circumstances increasingly determine whether people can afford a decent retirement, while the long-held assumption that most people will own their home outright by retirement is rapidly becoming outdated.
The report highlights renters as one of the groups facing the greatest retirement challenge. Almost two million more pensioner households are projected to be renting by 2044 - a threefold increase - yet median private pension wealth for those aged 60 to 64 is only around £154,000. Renting a two-bedroom home throughout retirement could cost between £200,000 and £400,000, depending on location.
Single people are also at greater risk, needing around 28% more income than couples to achieve the same standard of living. Divorce continues to undermine retirement security, with only 11% of divorcing couples making pension-sharing arrangements, while survivor benefits under Defined Contribution pensions are no longer automatic and depend on choices made at retirement.
For the UK’s growing cohort of self-employed individuals, the picture is particularly stark. Unlike employees, they have no access to Auto-Enrolment, no employer pension contributions and no default mechanism to make pension saving the norm.
PensionBee’s own research found that a self-employed person earning £30,000 a year is projected to retire with £64,000 less than an employed peer on the same salary, largely because they miss out on employer pension contributions.
The report also identifies weaknesses within Auto-Enrolment itself. For workers earning close to the £10,000 earnings trigger, the headline minimum contribution rate of 8% equates to an effective contribution rate of just over 3% of total pay because contributions are only paid on qualifying earnings rather than every pound earned.
Maike Currie, VP Personal Finance, PensionBee, commented: “This report lays bare a structural mismatch at the heart of the pensions system. Auto-Enrolment was designed for a Britain where most people bought a home, stayed in one job for years and retired as part of a stable couple household. Today Britain looks very different, with rising housing costs, more fragmented careers and changing family structures.
“The fastest-growing group of future retirees are people who rent, move between different types of work, live alone or have caring responsibilities that interrupt their savings. The system has not kept up.
“The system has let self-employed workers down but that doesn’t mean they have to wait for it to catch up. A personal pension doesn’t require an employer, a fixed monthly commitment or a minimum contribution. Most contributions will usually benefit from tax relief from the Government. Even starting later in life and contributing what you can can make a meaningful difference. If you’ve had workplace pensions in the past, tracking them down and consolidating them is often the best first step.
“But policymakers also need to act. The Self-Assessment tax return already reaches every self-employed worker in the country. Using that moment to encourage pension saving, explain tax relief and make opening a personal pension the obvious next step would be a simple, low-cost reform capable of transforming retirement outcomes. At the same time, bringing the Auto-Enrolment age down from 22 to 18 would give millions of young workers a valuable head start, allowing decades of compound growth to do more of the heavy lifting.”
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