Britons warn they are not saving enough for retirement and face a ‘dangerous’ future

LONDON — British workers face a ‘dangerous’ future when it comes to their pensions, according to a report released by the Institute for Finance, a think tank.

A report released last week outlined the “challenges” facing future generations and argued that the entire system needs to be overhauled.

Nearly 90% of Britons don’t have the right amount in their pension pot, according to the IFS report. This is generally considered to be around 15% of income. Low-income earners are particularly at risk because they do not always meet the requirements for automatic enrollment in pensions.

“Only 44% of those earning between £5,000 and £10,000 ($6,200 to $12,500) a year in 2019 had a pension,” the report said. Percentage of people earning over £50,000.

Most pensions are saved through defined contribution programs. The final amount will depend on how much the owner has donated throughout their lifetime and the success of their investment. Another method is the less common defined benefit plan. Pensioners receive retirement income based on their final salary and years of service with their employer.

More people are joining defined contribution plans after retirement, which not only provides more flexibility but also makes owners themselves responsible for managing their finances and the associated risks, the report says. Says.

“Pension freedom gives people the opportunity to control their finances, but making decisions about how to spend their pension wealth in retirement can be difficult for even the most numbered,” said the IFS. increase.

More and more people are choosing to be self-employed, but the self-employed’s pension savings are “collapsed,” he said.

“Now is the time for a major overhaul of the pension system to give it a chance to avoid a worse future,” the IFS report said.

According to Romi Savova, CEO of pension management platform PensionBee, increasing the pension contribution rate for UK workers should be a “first priority” when it comes to reforming the pension system.

“Automated enrollment has proven to be an invaluable tool in increasing the number of people participating in pension savings, and by removing the lower income threshold (currently £10,000), That advantage can ultimately get more low-wage, part-time people,” Savova told CNBC in an email.

Including self-employed savers in the framework would boost their pension entitlements and reduce their dependence on public pensions later in life, Savova added.

Most people in the UK are automatically entitled to a public pension, currently at £203.85 ($253) a week. While this amount is more generous than previous public pensions, the standard of living for middle- and high-income earners who had not put money into a private pension fund in their lifetime would still be “significantly lower,” according to the IFS. .

The public pension age is now 66, which means that on average men’s pensions should cover 19 years of their lives, while women have enough to cover an additional 21 years after retirement. means you need to save a reasonable amount of money. Life expectancy data from the National Bureau of Statistics.

According to the ONS, the public pension age will be raised to 68 between 2044 and 2046, and without reform, according to Nigel People, director of policy and advocacy for pensions and lifelong savings. It just creates a more difficult retirement environment. Association.

People told CNBC, “Raising the state pension age will only escalate pensioner poverty, which will disproportionately weigh on those who retire early due to low incomes and poor health. There are,” he said.

Even when people put enough money into their pensions, there’s a lot of debate about how that money is spent and whether it’s invested in the right places to maximize returns. .

For example, recent changes in bond market movements in global financial markets mean that the composition of defined benefit pensions needs to change, says London Mayor Nicholas Lyons. I have dealt with it.

“Asset managers have been able to invest in fixed income products because the bond market has been on the rise for 20 years,” Lyons told CNBC, but combined with rising interest rates, the new inflationary environment is set to continue. He said it meant there was a need for change.

“We need to invest in the real economy, so now we shouldn’t look at what happened in the last 15 years and say it will last forever. We need to see this as a starting point,” he said. said. Added.