Workers should double pension savings, says new Labour review

A man adds a coin to a pile of coins to illustrate pension savings

Financial planning in association with Scottish Widows bannerEmployees should be placing 15 per cent of earnings into pension schemes – double the current average of 4.7 per cent – report advises

Workers should double the amount they save into their pension schemes, according to a review set up for the Labour party.

The average worker currently places just 4.7 per cent of their salary into their pension pots (topped up by an employer’s contribution of less than four per cent).

In the report, Professor David Blake, director of the Pensions Institute at Cass Business School, writes, “To get a decent-sized pension pot for retirement, it is necessary to make adequate pension contributions – something of the order of 15 per cent of pensionable salary.”

The two-year study, which will be used as a blueprint for Labour’s pensions election policy, was commissioned by Rachel Reeves (the then-shadow work and pensions secretary) after the government announced proposals for pension freedoms in the 2014 budget.

The review also suggests that since these pension freedoms were introduced, savers were exposed to risks they didn’t necessarily understand.

“Until recently, the only purpose of a pension scheme was to provide lifetime income security,” writes Professor Blake in the 595-page report. “Nobody knows what a good outcome looks like since the pension freedoms. The danger now is we will have a generation who really can’t afford to retire.”

Among the raft of other new measures suggested by the review, is the recommendation that “safe harbour” retirement products be set up for savers. These products would be accredited by the FCA for accessibility, inflation protection and longevity insurance.

The IRRI review also proposes that the National Employment Savings Trust (set up by the government to help employers meet their obligations) be allowed to compete for retirement income business from 2018.

“This expert review asks serious questions about the sustainability of our current pensions system, and the increased risks being borne by individuals after recent government reforms,” says shadow work and pensions secretary Owen Smith.

“The relative popularity of the pension freedoms reforms should not obscure those questions and Professor Blake is right to challenge government and employers to play their part in mitigating the danger that pensioners who have saved all their lives might still have insufficient funds to last them through retirement.”

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