Hannah English, Head of DC Corporate Consulting, Hymans Robertson says: “The release of today’s DWP research papers on the Gender Pensions Gap, the Future of Retirement Incomes and Analysis of AE saving levels amongst other updates, supported by the launch of the Pensions Commission, are a significant step forward by the government. Both, as a move to transform the existing pensions landscape and address current under-saving for retirement. It concludes a period of extremely significant pension changes with the Pensions Investment Review and launch of the Pension Schemes Bill amongst other regulatory changes in the last few months. The Analysis of Future Pension Incomes paper highlights significant under-saving across nearly half of all working people; 43% of savers are not expected to meet their Target Replacement Ratios in retirement, increasing to 46%, if they must allow for housing costs, representing c15m individuals. This is unacceptable, and we welcome a review into improving such levels of under-saving.
“The DWP analysis notes there are many measures that can be used to assess what an adequate income might be for individuals in retirement but does not provide an answer. We would strongly encourage that this is better defined within the remit of the Pensions Commission, so that the wider pension industry can have clearer guidance on what individuals should be aiming for. Whilst the Retirement Living Standards have been a success in helping savers consider the levels of expenditure they may need in retirement, we caution about the lack of housing costs in such standards. Primarily, this is because considering any assessment against these in isolation, paints a rosier picture than will be the reality for many individuals once they reach retirement. We encourage the Pension Commission to consider whether pensions can be used to address the growing numbers of renters in retirement, which is something we strongly support and highlighted in our recent paper Untapped Potential for Pensions.
“Rightly so, the DWP analysis supports and highlight the success of auto-enrolment (AE) in getting more people into saving and thinking about their retirement. However, it also shows that average contribution rates have declined since the rollout of AE, combined with the shift from DB to DC. Of particular concern is the gaps in gender pension savings levels which remain stubbornly high with a 48% median Gender Pensions Gap amongst 55-59 year olds. We would encourage the government to review the entry age criteria and lower the earnings limit as soon as possible; the Pensions (Extension of Automatic Enrolment) Act 2023 gave the Secretary of State the power to a) reduce the lower age limit for auto-enrolment from 22 to 18 and b) remove the Lower Earnings Limit for qualifying earnings.
“As a firm, we believe reducing the lower earnings limit would particularly help lower earners, often women, to save more into pension as a proportion of their income. Whilst the reducing the age limit would not only support all savers to save more into pensions and retirement, it could also help reduce the gender pensions gap further. It would allow female employees the chance to save more over a larger proportion of their working career. In effect, this would avoid the dramatic fall often as a result of taking time out for child care or other caring responsibilities, which often fall to women later in life. All of which sees their pay and savings levels drag behind male peers. The government doesn’t need to wait 18 months for the outcome of the Pensions Commission to enact this, and we would encourage such measure to be introduced sooner rather than later to start addressing common reasons for under savings today. Whilst not covered in the analysis release today, we’d encourage the government and Pensions Commission to extend auto-enrolment to all workers. This can help achieve retirement adequacy and narrow the pensions gender gap. Removing the £10,000 earnings threshold would make an additional 1.2m women and 328,000 men eligible – a significant step forward in the challenge of ensuring a good retirement for all.”
Commenting on the launch of the DWP ‘Planning and Preparing for Later Life 2024’, Julie Hammerton, Managing Partner, Personal Wealth says: “Today’s DWP research explicitly outlines how midlife is a key turning point for retirement planning and reprioritisation of financial spending. This isn’t surprising in the context of our own research we undertook last year amongst 40–60-year-olds. It showed that 41% weren’t confident that they’d achieve their retirement plans, and over a third (35%) said that worrying about their future retirement finances was having a negative impact on their mental health.
“What’s encouraging to see in today’s paper is that many in the 45–54 age group are reprioritising spending, considering changes to work and living arrangements to better prepare for retirement. If people in this age group are taking action now, before it’s too late, they’ll have a better chance of being able to retire at an age and with a lifestyle they want.
“Along with individuals taking action, there is a lot that employers can do to help which should be a priority. This is because our research found that one in five ‘midlifers’ said worrying about their future retirement finances was affecting their ability to work today. We know that many employers recognise this is a problem. In response, we’re seeing an increasing number offering midlife financial health checks to their people. This really is the ‘sandwich’ generation, with a quarter bearing financial responsibilities for both children and elderly parents. It’s also an age group that’s been squeezed on retirement savings, as most were born too late to benefit from generous Defined Benefit (DB) pensions yet born too early to fully benefit from auto-enrolment.
“There are different ways in which midlife financial health checks could be delivered in the workplace, ranging from interactive webinars through to one-to-one guidance and financial coaching. The key thing is having access to an expert who can not only help people prepare for the future but also reduce the impact of stress on their ability to work today.”
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