Last night the Department for Work and Pensions (DWP) published “Scenario analysis of future pension incomes”. Although lacking a catchy title, the document does provide a useful analysis of the savings that the UK is making towards it’s collective old age, and whether these will provide adequate pension in retirement for savers.

To be honest, this document is not really one for this blog - it’s probably much more useful to academics, those in the Westminster village, and of course pension anoraks. Yet there are a few small pointers that may be of interest to our followers.

Perhaps the headline message is that around 12 million people in the UK are not saving enough for their retirement. Given that the UK working population is c.30 million - it follows that a very large chunk of workers face a significant income problem in the future. This is not a surprise (after all Auto-Enrolment legislation arose as a direct response to this problem), but it’s still chastening to see how much potential under-saving is out there.

The document does also seek to identify the reasons behind under-saving - and importantly which financial groupings are most exposed to this risk. Some may be surprised that moderate (the “squeezed middle” of media fame) and higher earners represent significant numbers of those not saving enough for retirement.

On a more positive note the report summary makes it clear that small changes to savings habits could make a significant difference to retirement income levels. And, as we have previously explored both here and at our events, adequacy of retirement income options will become increasingly important for both employers and employees in the post Default Retirement Age world.

So higher contributions will obviously help. Where are those funds to come from?

One solution - and perhaps the ideal - would be higher contributions from employers. Yet this is a big ask for UK business currently. Many organisations are still recovering from the economic downturn, and of course still need to remain competitive. And all have (or are about to) gone through the process and costs of meeting the new Auto-Enrolment requirements. Given this, it may be unrealistic to expect widespread extra financial commitment from employers in the pension contribution space for a little while yet.

So the onus for higher contributions, and indeed for taking responsibility for their own retirement planning, will probably sit with employees in the short term. Employers can help here by providing employees with financial education in the workplace. Such education may help employees identify areas of unnecessary everyday spend, or indeed change their spending habits. Either approach could free-up money which could in turn be redirected towards improved retirement funding. Ultimately both the employee and the employer will benefit from this approach.

We may well return to some of the report findings later in the year. But today’s key message for employers is that financial education in the workplace can have an important part to play in tackling the low levels of pension savings.

In the meantime, if you would like to see the detail of the DWP document it can be accessed via the following link:

DWP analysis of future pension income 080814

Best regards

Steve