Opinion: we're sleepwalking into a pensions crisis

Our writer is worried we’re headed for a financial disaster that most of us are simply ignoring.

Far too little has been done to sort out the rapidly looming pensions crisis in the UK.

A lot of attention has been rightly paid to issues affecting the poorest pensioners today, particularly the poorest WASPI women.

And a lot has been done, thanks to auto-enrolment, to begin to fix pensions for younger adults.

But the future timebomb is being ignored.

There’s a whole generation of people in their 40s who entered the working world when final salary pensions were already on the way out.

Like the rest of us, they didn’t benefit from automatic pensions savings until recently but they are now closer to retirement and their pots will have less time to grow.

Britain is sleepwalking into a pension crisis that risks making current pensioner poverty look essentially normal.

That’s the message of a TV show I have been involved with, called Britain’s Great Pension Crisis with Michael Buerk (and me! Pictured above), which grapples the issue of pension saving head-on.

In it, we take two couples who are in their 40s and want to think about retiring ideally in their 50s but by their early 60s at least.

I looked closely at their current pension savings and at the age they want to retire and projected forward to see what kind of income that would give them in old age.

Both couples wanted to retire before at least one of them had reached State Pension age, meaning they had to find an extra chunk of money to get them through those first few years.

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For Rachel and Aaron, the family we follow in the first episode tonight (4 December), it was an upsetting awakening.

They dream of moving to France and enjoying a very comfortable lifestyle.

In fact, they are on track to have their income dramatically cut. The amount they spend on groceries each week would fall from £80 to £24 – “student meals isn’t it?” mutters Aaron at one point.

Yet they are not unusual.

British workers are simply not doing enough to save for retirement.

Worrying numbers

Data from the Financial Conduct Authority shows that one in five of us aren’t saving anything at all into a private pension.

And research carried out by Aviva earlier this year found that nine million employees aged 45 and over have no idea how much they ought to have saved into a pension pot to enjoy a comfortable retirement.

In fact, over five million don’t know how much they have already saved in their pension.

Auto-enrolment won't solve everything

I talk to people all the time who don’t understand their pension savings and who just assume that the amount they are saving via auto-enrolment is the right amount for them.

Since auto-enrolment launched, people feel increasingly confident about their pension savings but that doesn’t mean they are saving enough for the retirement they want.

Steven Cameron, pensions director at Aegon, has urged savers to “remain realistic”.

“Overconfidence carries risks and people mustn’t be lulled into a false sense of security,” he says.

“While auto-enrolment means millions of employees are saving more for retirement, that doesn’t mean they’re on target for the retirement they aspire to or to maintain their pre-retirement standard of living.

“Furthermore, the growing population of self-employed are excluded from auto-enrolment and can’t rely on an employer to support their retirement funding.

“Realistically, there’s a lot more required to make sure you’ve saved enough for the retirement you would like.”

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Where will extra savings come from?

There is a lot more required and I remain very worried that enough people really understand their pension income needs.

Worse, I think that many people would simply struggle to save more than they are at the moment.

When I look around at my friends, I see people who struggle with the cost of childcare, the cost of large mortgages or high rents, and trying to meet these costs with wages that have effectively flatlined for much of the last decade.

Even if they know they need to save more, many would struggle to do so without cutting back on their current lifestyles massively.

Well, why don’t they cut back and save more then?

It’s very fashionable to assume that the current generation of workers splash all their money on Instagrammable holidays and luxuries they don’t need but the truth is that most don’t.

And everyone needs some income to spend on leisure, they can’t save every spare penny now for a better retirement in the future.

That’s just not how humans work – read Hard Times by Dickens.

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Then the issue of the self-employed is also a real concern.

Official data shows that 15% of the workforce are now self-employed, a huge rise in recent years. Yet that means they do not come under auto-enrolment and do not have employers making contributions.

With a growing self-employed workforce, this needs addressing sooner while there’s still time to turn it around.

'I'm a prime example of the self-employed pension problem'

Rising renters

Another serious issue for the current crop of workers is that many more rent now – and that is a cost that continues into retirement, unlike mortgages which are usually repaid by then.

One study from Hometrack showed that in the 10 years to 2016, the number of new private rented lettings increased by almost a quarter.

In fact, since 2008 there have been more new private rented lettings each year than home sales.

So that’s a big extra cost that needs to be saved for during working life – but of course, high rent can make it hard to save.

There was a report from Scottish Widows published in 2017 that said over-50s renters face a £43 billion shortfall in their pension savings.

In fact, it found that the average renter ought to save an additional £525 a month as well as their other pension contributions if they want to have enough to cover the extra cost of renting during their retirement.

So I am worried that a whole generation of renters face a difficult retirement and that the public purse will face an increased housing benefit bill. This is the iceberg ahead and I don’t think we are doing enough to steer clear of it.

Britain faces a pensions crisis. We are running out of time to solve it.

Now read: how much income do you really need in retirement?

Britain’s Great Pension Crisis with Michael Buerk aired 4 and 5 December on Channel 5. You can still watch it on My5.

Are you on track for retirement? What is the answer to the current pension issue? Is it for the Government or individuals to solve? Have your say in the comments section below.