Millions sleepwalking towards “less than minimum wage” at retirement

This trend has major implications for the 9.8 million people who have been introduced to workplace pensions since automatic enrolment was introduced in 2012, according to financial giant Aviva which carried out the research.

At automatic enrolment minimums, a typical 22-year-old would be on track for an income in retirement equivalent to just £6.55 per hour – significantly less than today’s national minimum wage of £7.83 per hour.

In light of its findings, Aviva has now called for this minimum contribution must be increased to at least 12.5 per cent by 2028 – shared between the employer, the employee and the tax man. This would boost a typical 22-year-old’s income in retirement to an equivalent of £8.45 per hour.

Today’s report also notes a record high number of small pension pots (“preserved pensions”) – 15.8 million. This is a 50 per cent increase since automatic enrolment was introduced in 2012. This comes in the same week as the government committed itself to the delivery of the pensions dashboard.

The dashboard is the core means by which consumers will manage their ballooning number of small pots. Aviva has been a long-time supporter of the dashboard and today’s figures highlight the need to make urgent dashboard progress.

The government’s feasibility study must include the requirement for all schemes to submit data and for state pension to be included if the dashboard is to be a success.

Alistair McQueen, head of savings & retirement at Aviva said “Millions of people are sleepwalking towards ‘less-than-minimum-wage’ at retirement.

To their credit, millions of employees have embraced auto-enrolment since 2012, in the belief that it will deliver them a comfortable retirement. But based on the current system and today’s data, they’re in for a shock, with many currently on the road to living on less than the minimum wage in retirement.

The proposed minimum saving rate of 8% of earnings, from 2019, is insufficient for millions of workers. We need to agree to further increases in minimum savings, failing to do so will bring misery to millions of workers.

Meanwhile, small pension pots are posing an equally large problem for millions of savers. This week’s ministerial statement gave the green light to deliver the dashboard, “facilitated by government”. We need to get facilitating, now!”

A Department for Work and Pensions spokesman said: “Our reforms have transformed pension saving in this country and we are committed to ensuring people are supported to plan ahead.

“Automatic enrolment has boosted the pensions prospects of almost 10 million people so far, setting them on the path to a financially secure retirement. We know there is more to do in terms of increasing contribution rates, and a further rise is due in April.”