The PPI has stressed the need to rethink the adequacy of retirement income in its latest report: 'What is an adequate retirement income?' Sponsored by The Centre for Ageing Better, the report examines what adequacy is, how it should be defined and who is responsible for providing it.
The report highlights that, of the 11 million people in the UK between the age of 50 and State Pension age, around 3 million will not achieve a minimum income standard as defined by the Joseph Rowntree Foundation (JRF).
Single person households were found to be around four times more likely to be below the JRF minimum income standard, whilst low-income households were twice as likely to risk inadequacy.
In addition to this, the report found that one in three savers can expect a ‘moderate’ retirement under the Pensions and Lifetime Savings Association (PLSA) definitions, whilst just one in ten can expect a ‘comfortable retirement’.
The report highlighted the figures for those approaching retirement as ‘an immediate cause for concern’, emphasising that the UK is currently on track for a quarter of people approaching retirement to fail to receive even a minimum income, whilst only around half of people can expect to maintain a personally acceptable level of income in retirement.
Women, people from BAME (Black, Asian, Minority Ethnic) groups, carers and disabled people are most at risk of not reaching adequacy targets. They are more likely to work in low paid jobs, work part time or flexibly, be self-employed or unemployed. As a result, they will generally find it more difficult to save into a workplace pension, other types of savings and/or buy a house.
Although automatic enrolment has meant more people have access to a workplace pension, contributions are lower than for previous generations who benefited from DB pension schemes. The PPI warns that future generations might find it harder to meet the minimum targets throughout retirement as they will have lower average levels of DB entitlement.
The PPI also flags that people are experiencing increasing additional demands on retirement income. This is due to the widening gap between leaving work and receiving the State Pension, paying for rent in retirement, paying off debts carried into retirement and supporting other family members.
In light of the findings, the PPI has called for a ‘settled consensus’ on retirement income adequacy to be established, suggesting that this be driven and supported by the Government in order to ensure buy-in from employers, industry, unions and stakeholders.