Pensions & savings

Living pensions

An assessment of whether workers’ pension saving meets a ‘living pension’ benchmark

Nye Cominetti
Nye Cominetti
Felicia Odamtten
Felicia Odamtten

Auto-enrolment has been successful in increasing pension saving participation among workers, especially those on lower incomes. However, given the improvements in take-up, the next pressing concern is whether workers are saving enough to deliver an adequate standard of living in retirement. A ‘Living pension’, parallel to the ‘Living wage’ could help us find the answer.

Previous Resolution Foundation analysis set out to establish a feasible framework through which a ‘Living Pension’ could be calculated. Building on this work, this report assesses workers’ actual rates of pension saving against the benchmarks produced by the feasibility study. Our findings show that while auto-enrolment has had a significant impact on both the number of people saving towards a pension and the amount that they save, overall contribution rates remain low for most workers.

Key findings

  • The biggest increases in the take-up of pension saving have come among groups that formerly had the lowest take-up. In 2011, 5 per cent of low-paid workers (defined as workers with pay in the bottom fifth of the distribution) were saving towards a pension; by 2020, this had risen to 44 per cent (excluding workers with defined benefit pension).
  • Gaps in pension take-up between higher and lower paid groups have fallen over the past decade. For example, the gap in the proportion of workers contributing to a workplace pension in the finance and hospitality sectors reduced from 57 to 52 percentage points between 2011 and 2020.
  • We compare workers’ pension contributions to two benchmarks, which apply to workers’ total earnings:
    • The ‘all age’ benchmark – an average rate which includes workers who start to save later in their careers. This is 16.1 per cent of pay or £3,000 per year for someone working full-time at the living wage.
    • A ‘whole career’ benchmark which applies if workers start saving in their 20s and therefore save across their entire career. This is 11.2 per cent of pay or £2,100 per year for someone working full-time at the living wage.
  • Outside of those saving in a DB pension, the vast majority of workers (over 80 per cent) are not meeting any of the living pensions benchmarks. Lower-paid workers are even less likely to have pension contribution rates which meet the benchmarks. Just 1 per cent of workers with hourly pay in the bottom fifth of the distribution meet the lower ‘Whole career’ cash benchmark of 11.2 per cent, compared to 65 per cent of workers in the top fifth of the hourly pay distribution.
  • Low proportions of workers meeting the living pensions benchmarks reflect a combination of two important factors, 1) Many workers (35 per cent) are still not saving towards a pension at all, and 2) when workers are saving, they are not saving close enough to the living pensions benchmarks.
  • However, increases in the auto-enrolment minimum contribution requirements have also led to increases in the levels of workers’ pension contributions. For example, between 2012 to 2017, the minimum auto-enrolment contribution rate was 2 per cent (including both workers’ and employers’ contributions); this was reflected in a modal total saving rate of between 1-3 per cent in the 2015-17 period. In 2019, the minimum auto-enrolment contribution was 8 per cent, and, correspondingly, the most common total saving rate across 2018-20 was between 6 and 8 per cent.
  • Men are more likely than women to have pension saving rates above the living pensions benchmarks: 23 per cent of male workers met the ‘whole career’ cash benchmark, compared to 15 per cent of female workers, however when accounting for pay, women are more likely to meet the living pension benchmarks.
  • Workers in (often high-paid) Manager and Senior professional occupations are 12 times more likely to meet or exceed the ‘whole career’ cash living pension benchmark compared to workers in (often low-paid) elementary occupations.

Related items

Building a living pension
Closing the pension savings gap for low to-middle income families
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Further reading

Ineffective Savings Accounts
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Molly Broome
Precautionary tales
Tackling the problem of low saving among UK households
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Molly Broome, Ian Mulheirn, Simon Pittaway
ISA ISA Baby
Assessing the Government’s policies to encourage household saving
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Molly Broome, Adam Corlett, Jack Leslie
Nye Cominetti
Nye Cominetti Principal Economist
Felicia Odamtten
Felicia Odamtten Economist