The UK is facing a pension crisis, with 15 million Britons not saving adequately for retirement. This is according to a report by the Pensions Commission, which warns that the number could rise to 19 million if no action is taken. The crisis is particularly acute among low- to middle-earners and the self-employed, with only 4% of the latter group putting money into a pension at all. The report also exposed a staggering gender gap, with women approaching retirement holding just half the private pension wealth of men. The commission is calling for a "renewed national settlement" to address these systemic failings.
The shift away from "defined benefit" schemes to "defined contribution" schemes has caused major problems for retirement planning. In most modern schemes, you can only get out of your pension pot what has been put in, along with any interest that has accrued. As wages have stagnated and housing costs have swallowed a larger share of take-home pay, the "surplus" cash required to top up a private pension has simply evaporated for many households. With the state pension currently topping out at £241.30 a week, private pensions are vital.
The report offers an interim conclusion to the government, suggesting ministers face a brutal three-way choice: hike taxes to fund a growing elderly population, force both individuals and employers to cough up significantly higher contributions, or further hike the retirement age. It is an unenviable "pick-your-poison" scenario for any politician, but with four in 10 people currently under-saving, "doing nothing" isn't an option.
The first easy step for most people is just to find out exactly how much they have. If people check, they might have a pleasant surprise, especially if they've been paying in for a long time and compound interest has helped it grow. The earlier you start, the more time it has to compound.
The government-backed MoneyHelper website has a section dedicated to advising people on pensions, with the chance to make appointments to speak to an expert, a calculator to help you work out what you can afford to pay and what you can expect to receive, and clear explanations of what types of pension there are.
In the meantime, the report highlights the need for a "renewed national settlement" to address the systemic failings in the pension system. The government must take action to ensure that all Britons are adequately saving for retirement, and that the pension system is fit for the future.
