Resolution Foundation publishes assessment of workers' pension saving against 'living pension' benchmarks

The Resolution Foundation published a report on 28 July 2022 assessing whether workers' pension saving meets "living pension" benchmarks, modelled on the living wage. The report, Living pensions, was written by Nye Cominetti and Felicia Odamtten and compares workers' contribution rates with two benchmarks based on total earnings¹.

The benchmarks are an "all age" rate of 16.1 per cent of pay, or £3,000 a year for someone working full time at the living wage, and a "whole career" rate of 11.2 per cent of pay, or £2,100 a year on the same basis¹. The foundation said the lower figure applies to workers who start saving in their 20s and save across their entire career¹.

Outside those saving in a defined benefit pension, over 80 per cent of workers are not meeting any of the benchmarks, the report found. Just 1 per cent of workers with hourly pay in the bottom fifth of the distribution meet the lower "whole career" cash benchmark, compared with 65 per cent of workers in the top fifth¹.

The report attributes the low proportions meeting the benchmarks to two factors: 35 per cent of workers are still not saving towards a pension at all, and those who do save are not saving close enough to the benchmarks¹. It also records gains in take-up: 5 per cent of low-paid workers, defined as those in the bottom fifth of the pay distribution, were saving towards a pension in 2011, rising to 44 per cent by 2020, excluding workers with defined benefit pensions¹. The gap between the finance and hospitality sectors in the proportion of workers contributing to a workplace pension narrowed from 57 to 52 percentage points between 2011 and 2020¹.

On contribution levels, the report notes that the minimum auto-enrolment contribution rate was 2 per cent, including worker and employer contributions, between 2012 and 2017, reflected in a most common total saving rate of between 1 and 3 per cent in 2015-17. In 2019 the minimum was 8 per cent, and the most common total saving rate across 2018-20 was between 6 and 8 per cent¹.

The report also gives breakdowns by sex and occupation: 23 per cent of male workers met the "whole career" cash benchmark, compared with 15 per cent of female workers, though when accounting for pay women are more likely to meet the benchmarks. Workers in manager and senior professional occupations are 12 times more likely to meet or exceed the "whole career" cash benchmark than workers in elementary occupations¹.

Why it matters for households

The figures describe how far typical workplace pension saving sits from the amounts the foundation calculates are needed for an adequate standard of living in retirement. Most affected are workers without a defined benefit pension, who rely on defined contribution arrangements built up through workplace pensions and auto-enrolment. The report's take-up figures cover the period to 2020, and its contribution figures cover 2011 to 2020, so they describe saving behaviour before the most recent changes in prices and pay. The benchmarks are the foundation's own, not regulatory minimum contributions: the statutory minimum was 8 per cent from 2019, against a "whole career" benchmark of 11.2 per cent¹. The report does not set out individual outcomes, and no estimate of the effect on any household's retirement income is given. For context on what retirement saving is intended to produce, see how much you need to retire.

What happens next

The report is an assessment against benchmarks set out in earlier Resolution Foundation work on a living pension; it announces no change to contribution rates or to auto-enrolment rules, and no next steps are reported¹.