Millions of people across Britain are failing to save enough for retirement, a new study has revealed.
The Pensions Commission’s interim report, published on Tuesday, revealed major shortfalls in retirement savings under the current system, with lower and middle-income earners facing the greatest risk of financial insecurity later in life.
Jeanie Drake, one of the three commissioners leading the review, said the scale of the problem appeared greater than many had expected.
She told the Financial Times: “The problem is bigger, I think, than people had anticipated.
“The case for trying to find a [solution] is quite compelling.”
The commission was established by Labour last year to assess whether Britain’s pension arrangements remain adequate, fair and financially sustainable.
It highlighted particularly severe challenges among self-employed workers, with only four per cent of those whose income comes entirely from self-employment currently holding any form of pension provision.
Ian Cheshire, who serves alongside Baroness Drake and Nick Pearce on the commission, said the findings had exceeded expectations.
Millions of Britons not saving enough for retirement, pensions commission warns
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Sir Ian said: “The degree of the issue on self-employed is much starker than [we] would have thought.”
When including all self-employed workers with mixed sources of income, the proportion with pension savings rises to only 17 per cent.
The report found the share of self-employed people contributing towards a pension has halved over the past 30 years.
Britain currently has nearly three million full-time self-employed workers, accounting for around one in eight full-time workers, according to House of Commons Library research published in February.
Much of the gap stems from the exclusion of self-employed workers
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Much of the gap in pension coverage stems from the exclusion of most self-employed workers from automatic enrolment, the Government-backed scheme which places eligible employees into workplace pension plans.
Sophia Singleton, head of defined contribution pension schemes at consultants XPS, said: “There is an obvious hole in policy relating to the self-employed given the absence of auto-enrolment as a mechanism to save.”
The original Turner Commission, which reported in 2005, played a major role in creating the automatic enrolment system now used across Britain.
Pensions Minister Torsten Bell previously described the Turner Commission’s work as among the most effective policy reforms of the past 25 years.
Across the wider working-age population, only 45 per cent of people are currently saving into a pension despite almost half of Britons being in employment.
Labour has already indicated it does not intend to raise minimum automatic enrolment contribution rates during the current parliament.
The commission’s interim findings also revealed significant differences between male and female savers.
Women in their fifties were found to hold private pension pots worth nearly half the value of those owned by men of the same age despite improvements in state pension equality over recent years.
The commissioners concluded that low and middle-income households remain most exposed to reaching retirement without sufficient savings.
Baroness Drake also warned that today’s political climate may make it harder to build consensus around future pension reforms than it was two decades ago.
She said: “We are already setting up discussions with [different stakeholders]… which is what Turner did as well.
“There are lots of things in today’s environment that are not as benign as they were back in 2004.”