Pensions Commission Report Shows Shortfalls in Retirement Savings

The Pensions Commission published its interim report on Tuesday showing major shortfalls in retirement savings under the current system. Lower and middle-income earners face the greatest risk of financial insecurity later in life. Jeanie Drake, one of the three commissioners, said the scale of the problem appeared greater than many had expected.

She told the Financial Times that the case for finding a solution is compelling.

The report highlighted particularly severe challenges among self-employed workers. Only four per cent of those whose income comes entirely from self-employment currently hold any form of pension provision. Ian Cheshire said the degree of the issue on self-employed workers is much starker than the commission would have thought.

When including all self-employed workers with mixed sources of income, the proportion with pension savings rises to 17 per cent. The share of self-employed people contributing towards a pension has halved over the past 30 years. Britain currently has nearly three million full-time self-employed workers, accounting for around one in eight full-time workers.

Much of the gap in pension coverage stems from the exclusion of most self-employed workers from automatic enrolment. The government-backed scheme places eligible employees into workplace pension plans. Sophia Singleton, head of defined contribution pension schemes at consultants XPS, said there is an obvious hole in policy relating to the self-employed given the absence of auto-enrolment as a mechanism to save.

Across the wider working-age population, only 45 per cent of people are currently saving into a pension despite almost half of Britons being in employment. The commission's interim findings also revealed significant differences between male and female savers.

Women in their fifties were found to hold private pension pots worth nearly half the value of those owned by men of the same age. The commissioners concluded that low and middle-income households remain most exposed to reaching retirement without sufficient savings.