Britain's pensions time bomb: Two in five young workers and 62% of self-employed face huge hit to living standards in retirement - because they aren't saving enough
Research by the respected IFS think-tank has found 39 per cent of younger private sector workers are not saving enough to avoid big falls in living standards.
Some 13 per cent are not even on track for to reach the 'minimum' post-tax income - the equivalent of £13,400 for a single pensioner or £21,600 for a couple.
The problems are even bigger among self-employed, with 63 per cent not expected to meet the so-called 'replacement rate' for incomes and 66 per cent not even reaching the basic level.
Low-earners are particularly likely to fall short of the minimum retirement funding, with a third not saving enough.
But the transition from work to retirement is set to be particularly painful for middle and top earners.
Half of those aged between 25 and 34 who are in the higher 50 per cent to 75 per cent of incomes, and paying into defined contribution pots, are set to experience a major drop in their living standards.
The Pensions and Lifetime Savings Association (PLSA) defines a minimum standard income as a post-tax income of £13,400 per year for a single pensioner or £21,600 for a pensioner couple.
That is after housing costs and based on living outside London.
The IFS report recommended that a target should be set for the state pension to be a proportion of earnings, 'to improve predictability'. Currently under the triple lock it rises annually by the highest out of earnings, inflation or 2.5 per cent.
It suggested minimum pension contributions by employers should be extended to 'almost all' employees from the first pound of their earnings.
Default pension contributions should also be increased when individuals reach the average wage, so that lower earners have their take-home pay protected.
The think-tank's review called for a simpler system for self-employed people to build up private pensions.
And it suggested a 'small fraction' of the savings from increasing the state pension age should be put towards enhancing universal credit for those approaching retirement.
'Means-tested support for pensioners should be streamlined to boost take-up, and housing benefit should be made more generous for the growing number of pensioners residing in the private rental sector,' the report added.
The changes would reduce the proportion of 25 to 34-year-olds projected to miss their income 'replacement rates' by 14 percentage points.
Just 6 per cent would fall short of the PLSA minimum retirement living standard, the report estimates.
Paul Johnson, Director of IFS and co-Director of the Pensions Review, said: 'There is much to celebrate about the current UK pensions system.
'The current generation of retirees is, on average, doing much better than any previous generation.
'Pensioner poverty is way down on the very high levels in the 1970s and 1980s, and is indeed below that for other demographic groups.
The IFS report laid out proposals it suggested would dramatically reduce numbers of workers facing hardship in retirement
'The state pension has been simplified and is now much more generous to many women than in the past.
'Many more employees have been brought into workplace pensions by the successful roll-out of automatic enrolment.
'But there is a risk that policymakers have become complacent when it comes to pensions. Without decisive action, too many of today's working-age population face lower living standards and greater financial insecurity through their retirement.'
Former Tory Cabinet minister David Gauke, who helped oversee the review, said: The government should provide a secure pension income, further increases in the state pension age should be accompanied by more support for those hardest hit, and both employees and employers should gradually contribute more to help achieve greater financial security in retirement.'
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
2 hours ago
- Reuters
Trump's Fed pick, Bank of England's 'hawkish' cut weigh on dollar
SINGAPORE, Aug 8 (Reuters) - The dollar was under pressure on Friday and was on course for a weekly fall as U.S. President Donald Trump's temporary choice for a fill-in Federal Reserve Governor stoked expectations for a dovish pick to replace chair Jerome Powell when his term ends. Sterling hovered near a two-week high, clinging to Thursday's sharp gains as the Bank of England cut interest rates but only after a narrow 5-4 vote, which showed the central bank's easing bias lacked conviction. Meanwhile, Trump's decision to nominate Council of Economic Advisers Chairman Stephen Miran to serve on a newly vacant seat at the Fed, while White House seeks a permanent addition, weighed on the dollar. Miran replaces Governor Adriana Kugler following her surprise resignation last week. "While we expect Miran to advocate for lower interest rates, we do not consider he will push the FOMC to cut the Funds rate if the data does not support a cut," said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia. "Depending on the president's perception of his performance, he may also be a contender to replace Chair Powell when his term ends in May." Trump has repeatedly criticised Powell for not cutting interest rates, and while he has backed off threats to oust Powell before his term ends on May 15, has accelerated the search for a replacement. Fed Governor Christopher Waller is emerging as a top candidate to be the next chair, Bloomberg news reported on Thursday. Against a basket of peers, the dollar is down nearly 0.7% on the week so far as concerns over softening U.S. economic momentum, especially in the labour market, boosted hopes of Fed rate cuts. The dollar index was last at 98.04 in early trading on Friday. The Japanese yen was flat at 147.07 per dollar. Adam Grotzinger, senior fixed income portfolio manager at Neuberger Berman, expects four consecutive rate cuts from the Fed totalling 100 basis points, starting later this year and finishing early next year. "When we're looking at economic data, don't be surprised by softer prints coming in on the economy in Q3," Grotzinger said. "That said, for the full year we expect kind of an okay growth, but slower than the last couple years." Traders are pricing in a 93% chance of a rate cut in September with at least two rate cuts priced in by the end of the year. Atlanta Fed president Raphael Bostic said on Thursday that while risks to the job market have increased, it remains too soon to commit to rate cuts with more data lined up ahead of the Fed's policy review scheduled for September 16-17. The BOE's split vote on Thursday showed policymakers remained concerned about still high inflation, even as it cut rates. The pound was nearly flat at $1.3439 on Friday, holding the previous session's gains and on course to clock its best weekly performance since late June. The vote-split in the BoE meeting "implies one of the most hawkish versions of a 25bp cut that reasonable could have been expected," analysts at Goldman Sachs said. Elsewhere, the euro was perched near a two-week high as investors found comfort in the prospect of talks between the U.S. and Russia aimed at ending the war in Ukraine. Russian President Vladimir Putin and U.S. President Donald Trump will meet in the coming days, Kremlin aide Yuri Ushakov said on Thursday. This would mark the first summit between leaders of the U.S. and Russia since June 2021. With the Kremlin announcing summit plans, "geopolitics are in the spotlight and likely to be the major driver of FX markets heading into the weekend," analysts at ANZ wrote in a Friday note.
Daily Mail
3 hours ago
- Daily Mail
Jodie Kidd makes rare public appearance with her lookalike son Indio, 13, as they attend the Space NK London launch party
Jodie Kidd made a rare public appearance with her son Indio while attending the opening of Space NK's new Oxford Street store in London on Thursday. The English fashion model, 46, was joined by her 13-year-old son, whom she shares with her ex-partner, former Argentinian polo player Andrea Vianini, at the event, held at the site previously occupied by Topshop. The proud mum put one arm around her son as the pair posed for the cameras ahead of the star-studded launch party. For the outing, Jodie looked effortlessly chic in a structured aqua blue blazer adorned with gold buttons. She teamed the stylish blazer with a classic black top and light blue slim-fit denim jeans. To complete her look, the beauty sported a pair of purple loafers with tassel detailing and toted her essentials in a mini black backpack. The 46-year-old English fashion model looked effortlessly chic in a structured aqua blue blazer adorned with gold buttons at the event, held at the former Topshop location Meanwhile, her son Indio sported a black hoody with skull and butterfly graphic prints and faded blue denim jeans. He completed his look with a pair of white Nike trainers as he beamed alongside his mum. Beauty retailer Space NK opened its huge new West End flagship store on Oxford Street on Thursday, in the space once occupied by Philip Green's store. The 4,600 sq ft superstore at 214 Oxford Circus is the company's biggest outlet yet. The store, set on one floor, will feature Space NK's new 'beauty experience concept' and stock its entire range of luxury beauty and skincare brands. Space NK previously promised the London flagship would allow customers 'to explore the very best that beauty has to offer.' Chief Executive Andy Lightfoot told Cosmetics Business earlier this year: 'With our active customer base now reaching two million and our growth continually outperforming the market at over 30%, 'We saw that now was the time to answer our customers' demand for a true flagship in the West End. 'Oxford Street is one of the preeminent shopping destinations in the world, and 214 Oxford Circus in particular is an iconic store. An iconic location for our new central London flagship store. He added: 'The mission with our flagship to push boundaries once again on what can be achieved with an instore shopping experience – and another page in the story of Space NK, as well celebrate 30 years a leading British beauty retailer.' Space NK was founded in 1991 by entrepreneur Nicky Kinnaird, whose initials gave the company its name, with its first store opening in Covent Garden in 1993. It is now owned by investor Manzanita Capital. In May last year, Sky News reported the chain was exploring a sale and had appointed investment bankers to manage the process, valuing it between $374 million and $500 million.
Sky News
4 hours ago
- Sky News
Rachel Reeves said this flagship policy would raise money - it may end up doing the opposite
What do we do about the non-doms? It's a question more than a handful of people have been asking themselves at the Treasury lately. It had seemed simple enough. In her first budget as chancellor, Rachel Reeves promised a crackdown on the non-dom regime, which for the past 200 years has allowed residents to declare they are permanently domiciled in another country for tax purposes. Under the scheme, non-doms, some of the richest people in the country, were not taxed on their foreign incomes. Then that all changed. Standing at the despatch box in October last year, the chancellor said: "I have always said that if you make Britain your home, you should pay your tax here. So today, I can confirm we will abolish the non-dom tax regime and remove the outdated concept of domicile from the tax system from April 2025." The hope was that the move would raise £3.8bn for the public purse. However, there are signs that the non-doms are leaving in such great numbers that the policy could end up costing the UK investment, jobs and, of course, the tax that the non-doms already pay on their UK earnings. If the numbers don't add up, this tax-raising policy could morph into an act of self-harm. With the budget already under strain, a poor calculation would be costly financially. The alternative, a U-turn, could be expensive for other reasons, eroding faith in a chancellor who has already been on a turbulent ride. So, how worried should she be? The data on the number of non-doms in the country is published with a considerable lag. So, it will be a while before we know the full impact of this policy. However, there is much uncertainty about how this group will behave. While the Office for Budget Responsibility forecast that the policy could generate £3.8bn for the government over the next five years, assuming between 12 and 25% of them leave, it admitted it lacked confidence in those numbers. Worryingly for ministers, there are signs, especially in London, that the exodus could be greater. Property sales Analysis from the property company LonRes, shows there were 35.8% fewer transactions in May for properties in London's most exclusive postcodes compared with a year earlier and 33.5% fewer than the pre-pandemic average. Estate agents blame falling demand from non-dom buyers. This comes as no surprise to Magda Wierzycka, a South African billionaire businesswoman, who runs an investment fund in London. She herself is threatening to leave the UK unless the government waters down its plans. "Non-doms are leaving, as we speak, and the problem with numbers is that the consequences will only become known in the next 12 to 18 months," she said. "But I have absolutely no doubt, based on people I know who have already left, that the consequences would be quite significant. "It's not just about the people who are leaving that everyone is focusing on. It's also about the people who are not coming, people who would have come, set up businesses, created jobs, they're not coming. They take one look at what has happened here, and they're not coming." Lack of options for non-doms But where will they go? Britain was unusual in offering such an attractive regime. Bar a few notable exceptions, such as Italy, most countries run residency-based tax systems, meaning people pay tax to the country in which they live. This approach meant many non-doms escaped paying tax on their foreign income altogether because they didn't live in those countries where they earned their foreign income. In any case, widespread double taxation treaties mean people are generally not taxed twice, although they may have to pay the difference. In one important sense, Magda is right. It could take a while before the consequences are fully known. There are few firm data points for us to draw conclusions from right now, but the past could be illustrative. 3:06 The non-dom regime has been through repeated reform. George Osborne changed the system back in 2017 to limit it to just 15 years. Then Jeremy Hunt announced the Tories would abolish the regime altogether in one of his final budgets. Following the 2017 reforms there was an initial shock, but the numbers stabilised, falling just 5% after a few years. The data suggests there was an initial exodus of people who were probably considering leaving anyway, but those who remained - and then arrived - were intent on staying in the UK. So, should the government look through the numbers and hold its nerve? Not necessarily. Have Labour crossed a red line? Stuart Adam, a senior economist at the Institute for Fiscal Studies, said the response could be far greater this time because of some key changes under Labour. The government will no longer allow non-doms to protect money held in trusts, so 40% inheritance tax will be due on their estates. For many, that is a red line. 1:57 Mr Adam said: "The 2017 reform deliberately built in what you might call a loophole, a way to avoid paying a lot more tax through the use of existing offshore trusts. That was a route deliberately left open to enable many people to avoid the tax. "So it's not then surprising that they didn't up sticks and leave. Part of the reform that was announced last year was actually not having that kind of gap in the system to enable people to avoid the tax using trusts, and therefore you might expect to see a bigger response to the kind of reforms we've seen announced now, but it also means we don't have very much idea about how big a response to expect."
