The report, Increasing Pension Saving in the UK, explores the likelihood of savers being able to match their median annual income in retirement through a combination of state and workplace pensions.
It found that those on a national median income who start saving at 22-years-old with minimum contributions until the standard pension age (SPA) of 68 have a 49% chance of being able to replace their working income. This can be increased to a 59% chance if savers continue to contribute for two years after the SPA.
For people who take a break in their careers of up to seven years, the chance of reaching a replacement income drops to 34%. If workers only start saving at 40 this falls further to 5%.
Speaking at a breakfast briefing to launch the research at JP Morgan Asset Management, PPI director Chris Curry warned that even though auto-enrolment has got off to a “good start”, many savers will suffer a significant drop in income in retirement.
“It’s clear that auto-enrolment itself is not enough to give people the level of income they want in retirement,” he said. “So we need to look at ways to get people saving more.”
One way Curry proposed to do this is to “harness the power of inertia” by making default contributions higher, but offering a variable opt-out clause.
“Even if it leads to a slightly higher opt-out rate of the higher contributions they are still unlikely to opt out completely, which will be a positive step,” he explained.
JP Morgan Asset Management head of UK retail Jasper Berens added that retirement is “no longer an event, but a period”. And with retirements becoming longer, people will increasingly need guidance on their savings.
“Keeping it simple is the key,” he said. “The advisory needs to support people who want to engage and make active decisions on their pensions, but if they don’t we still need to be able to help them with what savings they have.”