Calls for the government to reform auto-enrolment have grown, after data from the Department for Work and Pensions (DWP) revealed that 38% of working age people, around 12.5 million savers, are under-saving for retirement.

This was measured against a target replacement rate (TRR) before housing costs (BHC), and was based on converting the full value of an individual’s defined contribution (DC) pension into an annuity.

The DWP suggested that pension saving in the UK was transformed by the introduction of auto enrolment (AE) with over 10.8 million people automatically enrolled, while pension participation in the private sector rose from 41% in 2012 to 86% in 2021.

However, the current analysis revealed there is still a large proportion of the population under-saving for retirement if individuals want to maintain a certain standard of living.

In particular, the research found that higher earners are more likely to be under-saving relative to TRRs, as around 14% of those in the lowest earnings band, less than £14,500 gross pre-retirement earnings per year, were under-saving, compared with 55% in the top earnings band, more than £61,500 per year.

It also found that 12% of working age people, around 4.1 million savers, are under-saving for retirement when measured against Pensions and Lifetime Savings Association’s (PLSA) minimum Retirement Living Standard (RLS).

However, this increased to 51% (17.7 million) and 88% (30.4 million) when comparing against the PLSA moderate and comfortable RLS, respectively.

In contrast to the findings around TRR, the data suggested that lower earners are more likely to be under-saving when measuring against the PLSA RLS, as around 34% of people in the lowest earnings band are projected to not meet the PLSA Minimum RLS, compared with 3% in the top earnings band.

The data also provided some insight into the level of under-saving, revealing that of the 12.5 million people under-saving, 5.3 million (42%) reached more than 80% of their target income.

The findings have already prompted industry concern and calls for action, with Aegon head of pensions, Kate Smith, highlighting the findings as demonstration of the “clear need to urgently implement the 2017 AE reforms as a first step”.

She stated: “These will bring more people into the scope of AE allowing them to start saving in a workplace pension from a younger age and particularly for low to mid-earners increases the amount of employer and employee contributions, as they will be based on earnings from the first pound rather than applying a salary offset.”

This was echoed by Quilter head of retirement policy, Jon Greer, who argued that while AE has had a transformational impact so far, the “stark figures make a case that this excellent policy now needs some fine tuning to ensure it drives more people into saving for retirement”.

Greer also argued that whilst it is “understandable” that the government recently chose to keep the AE earnings trigger, and to freeze the lower earnings limit, action is needed “sooner rather than later” by implementing some of the proposals put forward in the 2017 AE Review.

He stated: “If the government and general population do not start taking this seriously millions face a retirement in poverty relying on a meagre amount more than just the state pension.

“The government have committed to implementing these recommendations when parliamentary time allows and a private members bill was introduced to the house at the end of February but this is unlikely to become legislation.

“This should be an area of policy that the government are ploughing time and effort into so that we can speed up the pace of change.”

However, Smith argued that the government needs to go “much further, quicker” and look to phase in higher AE contributions of 12% of total earnings, spilt equally between employers and employees, to enable more people to achieve an adequate income in retirement.

She continued: “Those earning least could be offered the chance to stick at 8% if they are already on track for a reasonable replacement rate.

“But higher earners may need to be encouraged to pay higher voluntary contributions on top of auto-enrolment contributions to be able to maintain their lifestyles in retirement.

“The government must push the accelerator hard and publish an implementation plan for the necessary changes to avoid too many people sleepwalking into a miserable retirement.”

Adding to this, AJ Bell head of retirement policy, Tom Selby, argued that “the time has come for politicians and the pensions industry to stop patting themselves on the back about the success of automatic enrolment and start tackling the real challenge of pensions adequacy”.

Selby also clarified that whilst now is “not the time to hike people’s AE pension” given the rising cost of living, that does not mean policymakers should not set out a long-term trajectory to get people saving more.

He stated: “There are various interesting ideas out there, including ‘save more tomorrow’, where contributions rise automatically in line with pay increases, and exploring ways to link contribution rises to certain life events. But the longer we delay addressing this pensions adequacy challenge, the bigger it becomes.

“This must include assessing how those excluded from auto-enrolment, including millions of self-employed workers, can be brought into the pensions system. Failure to do this will risk creating a two-tier retirement system, with the self-employed left relying on the state pension and not much else in their later years.

“Today’s analysis also gives valuable context to the debate around retirement savings incentives. The focus must remain on encouraging people to save more for the future, rather than hacking back pension tax relief at every opportunity.”


This article first appeared on our sister title, Pensions Age.

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