The Institute for Fiscal Studies (IFS) has encouraged savers to substantially increase the proportion of earnings they set aside for retirement through their working life.

According to a new report from the research institute, the government should nudge people to save more into a pension when children leave home, mortgages are paid off or when student loans come to an end.

The research used an economic model to illustrate how people would be expected to change their saving rates over their life in response to predictable factors.

The IFS stated that if earnings are known to increase with age, then earnings growth and costs associated with children would be expected to lead people to delay the majority of their retirement saving until older ages – particularly to after children have left home when expenses fall.



If employers make pension contributions only if people also save themselves, the IFS also suggested that employees would be expected to save throughout working life, but in low earning years only at the minimum amount required to get the employer contribution. Saving rates for retirement would still be expected to increase dramatically at older ages, and particularly when expenses associated with children fall.



Furthermore, the findings also stated that factoring in uncertainty about the future path of earnings would lead to more saving happening earlier in life.

IFS associate director and one of the authors of the report, Rowena Crawford, commented: “There are good reasons why individuals should not want to save a constant share of their earnings for retirement over their entire working life. This does not make automatic enrolment, with its single default minimum contribution rate, a bad policy.

“But as policy makers consider how to increase retirement saving further, focus should be on policies that increase retirement saving at the best time in people’s lives rather than just increasing saving irrespective of their circumstances.

“Default minimum employee contributions to workplace pensions that rise with age are an obvious option. A smart, joined up, approach across Government could also involve employee pension contributions rising when an individual’s student loan repayments come to an end.”

Commenting on the IFS findings, Aegon pensions director, Steven Cameron, said: “Nudging individuals to consider contributing more to their pension at certain points across their life is a good idea, and we have seen reduced expenditures during the pandemic prompting many individuals to increase contributions alongside increased savings.

“But we must avoid sending out any message suggesting it’s OK for younger workers to delay thinking about pensions until later in life. While retirement may seem far off for this group, it’s the contributions paid at younger ages which have longest to benefit from compound investment growth.”

Royal London director of policy and external affairs, Jamie Jenkins, added: “Such proposals have merit and resonate with the success we’ve seen where ‘save more tomorrow’ schemes are deployed in workplace pensions.

“The first priority must be to implement the proposals from the 2017 review as soon as we are comfortable that employers and employees have recovered their finances from the pandemic.”

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