Connected Research

Union policy research in the 21st century

Scottish Widows pension survey

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Pensions and investment provider Scottish Widows has produced a report on pensions saving which contains some interesting facts and figures.

The report (link is to Press Release) – the fifth year that it has been produced – is based on an online YouGov survey of the level of pensions savings of a representative sample of 5,000 UK adults. At the headline level, the news isn’t bad: both Scottish Widows’ measures of savings adequacy have risen, and for the third year in a row. The company’s Pensions Index records that some 54% of UK adults aged over 30 and earning more than £10,000 per year are saving adequately for their retirement (which it defines as likely to achieve an income replacement ratio on the basis of a sliding scale of 90% of pre-retirement income for those earning £10,000 per year, reducing to 40% for those earning £50,000. Based on its assumptions, saving 12% of gross income between 30 and 65, or relying mainly on a defined benefit scheme, will provide such a level of income replacement). This is an increase on the 51% recorded in the 2008 survey.

Its second measure, the Average Savings Ratio, is based on the same assumptions but excludes those who will be relying mainly on defined benefit provision for their retirement income. This measure assesses the level of retirement savings as a percentage of gross earnings; in 2009, the Average Savings Ratio stood at 9.3% – this is a sizable increase on the 8.7% recorded in 2008 (and a high for the five years of the survey) but still lower than the 12% required to achieve Scottish Widows’s definition of an adequate income replacement ratio.

Unfortunately, away from the headlines, the news is less good. In particular,

– 54% of people saving adequately for retirement means, therefore, that 46% are not (of whom some two-fifths are saving nothing at all). Whether this is a glass half-full or half-empty is clearly a matter of personal reflection – but at least the figure on the half-full side is increasing. At the same time, the survey excludes those earning less than £10,000 per year where the likelihood of being able to save for retirement may well be lower.

– the increase in the Average Savings Ratio hides that fewer people are actually saving for their retirement but those who are saving are saving more

– savings for retirement amongst women over 50 are down, with 22% saving nothing for their retirement – a large increase on the 14% recorded last year. This suggests that many have concluded it is too late to save

– it is arguable whether a savings level of 12% of gross earnings over a 35-year working life will deliver an ‘adequate’ pension in retirement. This is lower than other figures suggesting that a higher rate over a longer period is required, and may thus be a little optimistic.

At the same time, and more positively, the report suggests that average contributions to defined contribution schemes are rising, and that lower earners are putting increasing amounts into personal pensions where they have no access to workplace schemes, which could bode well for the system of personal accounts from 2012.

The report highlights a number of policy areas which it indicates need to be addressed:

– pensions preparedness has not moved forwards since 2005 and, in particular, there has been little change in the amount of people saving nothing for their retirement, suggesting that the UK may have hit what the report calls its ‘natural rate’ of savings

– the gender pensions gap persists, with 59% of men, compared to 47% of women, saving adequately – a rise in the gap of three percentage points in the last year

– employer contributions play a critical role in retirement preparation and support needs to be provided during the downturn

– encouraging access to a wider range of savings products and to financial advice will make a major contribution to preparedness for retirement

– there is a continued low awareness of personal accounts amongst the target market and work here needs to be stepped up.

The report is a worthwhile contribution to the debate about pensions saving and contains some interesting pointers both to what is happening in general as well as to what needs to be done in policy terms to achieve the break throughs in the range of areas necessary to preserve the role of occupational pensions savings in the UK’s retirement savings culture. What we do still lack, however, as I have blogged previously, is a greater understanding not so much of the ‘whats’ but of the ‘hows’ in advancing that system – and that requires a much greater level of dialogue between all stakeholders, including both industry, trade unions and government.

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Written by Calvin

30/06/2009 at 1:58 pm

Posted in Pensions

Tagged with ,

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