DWP: Pension Reform Helps UK’s Savings Problem
The British government believes that the pension reforms it has been implementing are helping many people to boost their retirement income, as the changes are contributing to more people saving for retirement. However, it also admits that it had underestimated the savings problem.
According to Pensions Minister Steve Webb, about 12.2 million people will end up with too low an income in retirement if the current savings rates continue. However, an analysis by officials at the Department for Work and Pensions (DWP) has revealed that, had the reforms not been started, this figure would have been even higher.
The two major factors that can help with the pension savings problem are automatic enrolment and the state pension reform, the DWP said. The latter is expected to boost retirement income for the lowest earners, analyses suggest, but middle and high earners might lose out on income. The DWP found that about 378,000 of those with an annual income of over £35,400 are likely to end up among the poorest 20% in retirement if they do not make adjustments to their savings.
According to the report, an “adequate” retirement income should be a proportion of the working age income in the later stages of one’s career. For those earning less than £12,000 a year, this should be 80% of their working wages. However, those earning over £51,000 while working will be considered to have an “adequate” income if they receive about half of that when they retire, Financial News website noted.
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