Workers advised to double pensions savings

A two-year review for the Labour Party has concluded that workers saving for their retirement should double the amount they are putting away in their occupational pensions schemes.

The Independent Review of Retirement Income recommended workers put 15% of their lifetime earnings into their pension pot, but the average worker currently contributes just under 5% of their pay.

"To get a decent-sized pension pot for retirement, it is necessary to make adequate pension contributions - something of the order of 15% of pensionable salary," said Professor David Blake, director of the Pensions Institute at Cass Business School, in the report.

The report also cautioned that pensioners withdrawing lump sums from pension pots under retirement freedoms introduced last year could become a “honey pot” for fraudsters.

The findings came as the government kicked off a review of the state pension age, which could mean those joining the workforce today will have to wait until their 70s before they can retire.

Currently, the state pension age is set to be 67 for men and women by 2028.

Pensions provider Royal London published research on Wednesday suggesting today’s workers may need to wait until as late as 81 to retire if they want to maintain their living standards.

Royal London said an average earner who starts saving for a pension aged 22 and makes the minimum statutory contributions would need to work until the age of 77 to get the ‘gold standard’ pensions enjoyed by many of their parents’ generation.

This is defined as a total pension – including state pension – of two thirds of pre-retirement income, with protection against inflation and something for a surviving spouse.

To get a ‘silver standard’ pension of around half of pre-retirement income, the same worker would need to work until the age of 71, Royal London said.

Steve Webb, director of policy at Royal London, said: “It is great news that millions more workers are being into workplace pensions, but the amounts going in are simply not enough to give people the kind of retirement they would want for themselves, and certainly not the sort of pensions that many of those retiring now are enjoying.

“The best antidote to having to work well beyond normal retirement ages is to start saving early and to increase pension saving. A good tip is to review your pension saving when you get a pay rise as you are less likely to miss money you have never had. Increasing your contributions when your pay goes up is the best way to avoid having to work until you drop.”