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Experts have warned the situation could get worse as workers are forced to opt out of saving into workplace pensions as they need the funds to pay for everyday bills. More than one in 10 pension savers are not saving enough to afford a basic retirement, when compared with figures from the Pension and Lifetime Savings Association (PLSA).
The DWP report found 38 percent of working age people, which is the same as 12.5 million Britons, are currently under saving for their retirement.
14 percent of low earners, who earn less than £14,500 a year, are not putting enough aside, compared to 55 percent of those in the top earnings band, earning more than £61,500 a year.
Gary Smith, director of Financial Planning at wealth management firm Evelyn Partners, said: “This analysis takes a current look at the pension savings market, and I remain concerned that rising energy, food and borrowing costs might force many into opting out of their workplace pension arrangements, as they seek to make their incomes cover the essentials, creating an even greater shortfall in pension savings amongst those that probably require it the most.
“The report should also be a stark reminder to the Chancellor, ahead of his upcoming Budget statement, that any attempts to reduce the tax-efficiency benefits of pension schemes in an effort to chase revenue could result in more savers opting out or pension savings, thus creating a generation who will be very much reliant upon the state to provide their income in retirement.”
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The PSLA calculated a single person would need income of £12,800 a year for a basic retirement while a couple would need £19,900 a year.
Yet 34 percent of those in the lowest earnings category are not on track to achieve this while 12 percent of all working age people fall short of this income.
Mr Smith said: “Huge numbers still aren’t saving enough towards their retirement, and it particularly shows that middle and higher earners with defined contribution pensions are likely on retirement to see the biggest shortfall when compared to the income they were receiving in work.
“It does suggest that minimum contribution levels, within workplace pension arrangements, might have to increase further in order to make sure people are saving adequate amounts, and won’t be caught out by a living standards shock when they retire.”
DON’T MISS
A person can check how much state pension they are on track to receive using the state pension forecast tool on the Government website.
A couple who appeared on a recent episode of Martin Lewis’ ITV show shared their experience of boosting their state pension payments by £11,500 by topping up their contributions by just £990.
Mr Lewis encourages those aged 45 to 70 to check if they can top up their state pension as this can provide large payment increases over the course of a person’s retirement.
The state pension is increasing by 10.1 percent in April, with the full basic state pension increasing to £156.20 a week while the full new state pension is going up to £203.85 a week.
