Cost-of-living crisis means workers having to prioritise meeting needs now over meeting needs later
Four in five workers (16 million people), are not saving enough to meet their needs in retirement, according to new research commissioned by the Living Wage Foundation and completed by the Resolution Foundation. These numbers exclude Defined Benefit pension savings.
Low-paid workers are least likely to be saving enough, with fewer than five per cent saving at a rate which would provide an adequate standard of living in retirement.
Low savings levels are a long-standing issue, however, the cost-of-living crisis is exacerbating the problem. The UK’s lowest-paid workers have been hardest hit during the crisis, often struggling to make ends meet. As a result, many are unable to prioritise saving for retirement, and today’s cost-of-living crisis risks storing up a future crisis of millions unable to afford even the basics in retirement.
In light of the research, published in a new report “Living pensions: An assessment of whether workers’ pension saving meets a ‘living pension’ benchmark”, the Living Wage Foundation is calling for the development of a new ‘Living Pension Standard’ A Living Pension Standard builds on the work of the real Living Wage by providing stability and security for workers in the future. The Living Pension is currently being piloted with a number of employers and the initiative is funded by abrdn Financial Fairness Trust.
Just as low pay has impacted female workers most, the gender pensions gap remains an issue. The report found that 23 per cent of male workers met the ‘whole career’ Living Pension cash benchmark, compared to 15 per cent of female workers, and that this is driven principally by differing levels of pay rather than differing saving behaviour.
The report finds that there are also huge variations in whether workers are meeting the Living Pension benchmarks by sector. 55 per cent of workers in the finance industry save at or above the ‘whole career’ cash LP benchmark, compared to only 2 per cent of workers in hospitality. These differences persist even if they account for variations between sectors in workers’ pay levels, occupation and whether they are full-time. This suggests that sector differences in pension saving are driven either by employers’ behaviour or their approach to the overall renumeration package.
Katherine Chapman, Director of the Living Wage Foundation, said: “The current cost-of-living-crisis has hit low paid workers hardest, and many are not only struggling to keep their heads above water today, but also worrying about an uncertain future. This report shows that 16 million people are unable to save enough to meet their everyday needs beyond their working lives. Today’s cost-of-living crisis risks becoming tomorrow’s pensions crisis.
“Over the last ten years the Living Wage campaign has grown in strength and numbers. Now paid by over 10,500 employers, it has delivered essential pay rises to 300,000 workers. Developing a Living Pension standard will build on this, it will not only encourage and reward employers offering more than the minimums to their employees, it will also provide a clear benchmark for those employees to measure against. By making this accessible and simple, we aim to bring greater transparency, understanding and confidence to pensions, and build on the work of the Living Wage, by providing security and stability for workers now and in the future.”
Felicia Odamtten, Economist at the Resolution Foundation, said: “Companies signed up to the real Living Wage are helping their low-paid staff through the cost-of-living today. But these workers should also be able to afford a decent standard of living later in life, and hardly any low earners are saving enough to meet their basic needs in retirement, except for the very lucky few that still have access to defined benefit schemes. A Living Pension could play an important role in addressing this living standards gap.”
Mubin Haq, Chief Executive of abrdn Financial Fairness Trust said: “We have made some good progress on pensions in recent years, especially the introduction of auto-enrolment which has led to millions more saving towards their retirement. However, the amounts saved in defined contribution schemes fall far short of what is needed. This affects all workers, but those in low pay even more acutely. Unless we take action now we are on course to wipe out many of the gains we have seen in reducing pensioner poverty. A living pension provides employers with a model to do the right thing and ensure their staff are not facing hardship in the future.