Workers hoping for a comfortable retirement could find their living standards hit by having to bear the burden of the risk of poor investment performance and uncertain lifespans, according to a leading economic think tank.
The Institute for Fiscal Studies (IFS) has today launched a pensions review in partnership with the Abrdn Financial Fairness Trust.
The review will produce a series of reports over the next two years on the challenges facing future generations of pensioners, with its main phase concluding in summer 2025.
In its first report published today it called for, “a major review of pension provision now in order to give us a chance of avoiding a future that looks worse than the present.”
The report said that at age 65, only 3 to 4% of those born in the 1930s and 1940s lived in private rented housing, compared with 6% for those born in the 1950s and with what looks likely to be 10% for those born in the 1960s.
It said that unless a wave of inheritances leads to rising home ownership, this percentage could be even higher for younger generations. This could lead to a low standard of living in retirement or a greater reliance on housing benefit.
Longevity improvements have not been as big as predicted a decade ago, according to the report.
Paul Johnson, director of the IFS, said: “The last decade or so has seen state and private pensions deliver much better outcomes for many pensioners. But there is a risk this has bred complacency among policymakers.”
Former Chancellor Alistair Darling, a pensions review steering group member and chair of the Abrdn Financial Fairness Trust, said: “Twenty years ago we set up the Pensions Commission, which laid out a range of important reforms including auto-enrolment. But today much has changed and the landscape is very different. Too many are saving too little for retirement.”
Phil Brown, director of policy at People’s Partnership, said: “This research adds to the growing body of evidence showing that the majority of British workers are under-saving for retirement. What’s currently missing is a societal consensus on how we reverse that trend.”
A Department for Work and Pensions spokesperson said: “Automatic enrolment has succeeded in transforming pension saving, with more than 10.8m workers enrolled into a workplace pension and an additional £33bn saved in real terms in 2021 compared to 2012.
“We’re also supporting proposals to expand automatic enrolment, enabling millions to save more earlier. These changes will particularly benefit groups – including women, young people and lower earners – who have historically found it harder to save for retirement.”
The Abrdn Financial Fairness Trust is a charitable trust which funds work to tackle financial problems and improve living standards for people on low-to-middle incomes.
