Three out of four UK workers are sleepwalking into a retirement crisis. New analysis from the Pension Policy Institute reveals that 75% of employees are not on course to achieve even a moderate income in old age. The figure is up from 69% in 2018, as auto-enrolment fails to keep pace with rising living costs.
The moderate retirement income target set by the Pensions Commission stands at £22,400 a year for a single person. Yet typical contributions from employers and employees, mandated at 8% of earnings, fall far short. The institute calculates that to hit the target, a 22-year-old earner would need to stash 12% of salary from day one.
“The system is broken,” says a senior Treasury source who spoke on condition of anonymity. “Auto-enrolment was a victory for basic coverage, but it has not delivered adequacy. People think they are saving, but they are just treading water.”
The call for intervention is growing louder. Labour’s shadow pensions minister, Jonathan Ashworth, has demanded an immediate review and a hike in minimum contributions. “This is a ticking time bomb,” he said. “The government must act now, not after another decade of drift.”
But the Treasury is resistant. Officials point to the cost of living crisis and warn that forcing employers to pay more could hit jobs. “It’s a delicate balance,” admits the source. “We know the numbers are stark, but we cannot ignore the economic reality.”
Documents obtained by this paper show internal Treasury models projecting that even with a rise to 12% minimum contributions, the proportion of under-savers would only fall to 60% by 2050. Treasury ministers have so far rejected proposals to tie the state pension to earnings rather than prices, a move that would cost billions.
Behind the numbers lie real lives. In a housing estate in Luton, I spoke to Margaret, 54, a care worker earning £18,000 a year. She has been auto-enrolled for six years but her pot stands at just £12,000. “I don’t think about retirement,” she said. “I can’t afford to.”
Margaret is not alone. The PPI study found that low earners, women, and the self-employed are hit hardest. Two-fifths of workers have no private pension at all. The gender pension gap stands at 38%, unchanged for a decade.
“This is a story of complacency,” says Alice Guy, head of pensions at interactive investor. “Auto-enrolment was the easy win. Now we need the hard yards: higher contributions, better guidance, and a state pension that offers a genuine safety net.”
Today’s numbers will add pressure on Chancellor Jeremy Hunt ahead of the Autumn Statement. He has signalled a review of pension tax relief but ruled out a major overhaul. Yet the scale of the shortfall is immense. The PPI estimates that closing the savings gap would require an extra £30 billion a year in contributions.
Where does that money come from? The Treasury says it is a matter for employers and employees. Unions argue that business must shoulder more. The self-employed, who are excluded from auto-enrolment, remain a blind spot.
The clock is ticking. Every year of delay adds billions to the future bill. As the PPI report warns, “current policy settings are not sustainable.” Treasury insiders admit privately that change is inevitable. The question is not if, but when. And for the 75% of workers heading for a lean retirement, when may be too late.
