A recent report from the Resolution Foundation has revealed the impact that auto-enrolment is having on the saving habits of UK workers. One of the positive predictions from the think tank’s findings is that millennials are likely to enjoy the same level of retirement income as current pensioners, going against the pessimism which usually surrounds the future financial prospects of young adults.
Considering both state and private pensions, and assuming a growth rate of 5.6% for money saved into auto-enrolment pensions, the report found that the average pension for a man will be £310 per week by 2020. This will fall to £285 during the 2040s, causing concern for those currently in their forties, but will rise again to a weekly sum of around £300 by the close of the 2050s. Women, meanwhile, will see a weekly pension income of £225 in 2020, rising to £235 by the middle of the 2030s and remaining at that level in the decades moving forward.
“Rising pensioner incomes has been one of the biggest living standards success stories this century,” said the Resolution Foundation’s senior economic analyst, David Finch. “And yet retirement is second only to housing in terms of causes for concern for young people’s prospects. But these fears are overdone. Millennials are on course to enjoy similar levels of retirement income to today’s pensioners, largely thanks to the success of auto-enrolment in getting them to save into a workplace pension from an early age”.
However, the think tank also warned that millennials are poorly placed to accumulate housing wealth and other forms of wealth enjoyed by baby boomers. Whilst the minimum contributions for auto-enrolment will increase from 2% to 5% in April 2018, with employers paying 2% of this, and again to 8% with employers paying 3% in April 2019, the report warns that such increases may not be enough.
The foundation’s report also said that,“Given the length of time it takes for pension reforms to take effect, there is no space for government to take a pause. Short periods of under-saving now have long-term ramifications as generation X might all too soon find out. Simply carrying on with the current path of auto-enrolment will not be enough if the Pensions Commission benchmarks of adequacy remain the aspiration. The UK will require a step-change in its saving to ensure an adequate retirement for all”.