Scottish Widows finds that people may retire with £15,000 less due to low wage growth and rising costs of living.
Frontier Economics have supported the publication with analysis of savings and retirement data and their implications.
The report found that Britain’s savers are facing a number of grave challenges when it comes to saving for retirement:
- Over a decade of sluggish real wage growth has left incomes depressed, leaving households with less room to manoeuvre financially, and less money flowing into their workplace pensions through autoenrollment.
- UK Households’ monthly cost of essentials is expected to rise by more than £200 over two years given current inflation expectations. Three quarters of respondents to Scottish Widows’ survey said that they need to cut back in one way or another to cope with this shock, with 11% saying that they have to cut back on pension savings.
- The value of existing retirement savings may also be falling – more than 15% of those in their 50s hold or desire to hold the majority of their retirement savings in cash-like assets, and are thus exposed to record-breaking inflation.
The report sets out that even before the cost of living crisis, many in Britain were not saving enough to enjoy a comfortable retirement. The current economic situation means that a shift towards higher pension contributions is currently untenable. However, once real wages start rising again, default workplace pension contributions should rise as well. The DWP should also consider setting up a Retirement commission that explores preparation more holistically than before; considering all forms of wealth including savings, housing and pensions.
In the meantime, Scottish Widows considers that there are a number of policy actions that could cushion the impact of the crisis on retirement preparations. For example, the Money Purchase Annual Allowance should be temporarily suspended to allow people to dip into their savings without undue detriment to their ability to save in their future. The FCA and HM Treasury need to find ways to fill the advice gap and nudge people towards appropriate savings products.
More detail is available in the full report, found here.
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