‘Staggering’ number of people not saving enough for retirement
A “staggering” number of people are not saving enough for their retirement, an executive at one of Britain’s biggest pensions and savings providers has warned.
Mike Eakins, chief investment officer at Phoenix Group, said households are facing a shock in later life when they realise savings pots are smaller than expected.
He said: “At the moment there is a material shortfall between what they’re saving and what their expectation is. It is really stark.”
His comments come after a report from the Institute for Fiscal Studies (IFS) revealed earlier this year that around 3.5m private sector employees do not pay anything into a pension in a given year.
Lord Turner’s Pension Commission, which ran from 2002 to 2006, recommended that employees put 15pc of their annual earnings into their pension.
However, out of those who do save, nearly nine in 10 middle-earning private sector employees are not meeting this target. Figures from the IFS found that nearly two-thirds are saving less than 8pc.
Mr Eakins said: “It’s a staggering statistic. The reality is that people today are not saving enough for their pension.
“We need to get contribution rates higher. And we also need to increase the returns that they will get to make the pension pots bigger.”
British pension funds need to commit more to so-called “productive” assets to boost savers’ returns, he added, which means increasing investment in infrastructure, housing and start-ups.
He said that in the UK just 9pc of pension funds are invested in these assets, which is far less than the 23pc equivalent in the G7.
This has left UK savers worse off than peers abroad, Mr Eakins said: “If you look over the period from 2011 to 2021, UK savers were worse off by about 1.2pc per annum than savers in Australia and Canada.
“It is detrimental to our most important stakeholder, which is our 12m customers. It’s also detrimental to broader economic growth and the outlook for the UK.”
His comments chime with the strategy being pursued by Chancellor Jeremy Hunt, who is trying to use Mansion House reforms to unlock cash from pension funds to invest in British businesses.
As one of eight signatories to his Mansion House agreement in July, Phoenix vowed to invest 5pc of assets, the equivalent of £12bn, in start-ups and private equity over the next six years.
However, this marks a small step in reversing a much wider trend across the pensions industry, as funds have been steadily withdrawing from British shares over the past three decades,
In 1992, UK pension funds held 32.4pc of British shares, according to the Office for National Statistics. In 2022, this proportion hit a record low of just 1.6pc.
Economists and business leaders have warned this means there is not enough cash to boost growth among companies.
Billionaire Tory donor Lord Spencer said: “It is a tragedy at one level and a disgrace at another level. It will take 10 years to remedy even part of the damage that has been caused.”
