Private pensions

It has been widely reported that the government will announce an increase in National Insurance contributions (NICs) to pay for increased funding for health and social care. This observation examines the effects of increasing NICs compared to increasing income tax.

Increasing attention is being given to the ‘gender pension gap’ – the fact that on average women have lower private pension wealth and lower income in retirement than men.

People on middle and higher incomes need to save privately for retirement, but deciding when and how much to save is difficult. One particular trade-off people face is how much to save in a pension and how much to save for, or spend on, owner occupied housing. In new research published today we examine interactions between housing and and pension saving at two distinct stages of life.

Figures out today from the ONS show that headline inflation over the year to September was just 0.5%. With earlier figures showing a fall in earnings of 1% this means that under the “triple lock” next April would see the basic state pension and new state pension both increase by 2½%. This would bring the increase in the basic state pension over the last eleven years up to 41%, compared to 25% if it had been indexed in line with inflation or by 22% if it had been indexed in line with earnings.

The proportion of the self-employed saving in a private pension has declined dramatically over the past two decades, leading to continued concerns about their financial preparations for retirement. At this event we presented the findings of new IFS research that has examined this trend.

From tomorrow, for the first time in over a decade, the point at which people can claim a state pension (the “state pension age”) is simple. If you have reached your 66th birthday, you can claim it. Otherwise you cannot. For women, the state pension age (SPA) has risen from 60 in March 2010, reaching 65 two years ago in October 2018. From then on the state pension age rose for both men and women, to reach age 66 tomorrow.

Automatic enrolment has been hugely successful, such that over 90% of eligible private sector workers are now members of workplace pension schemes.

The fall in stock markets has reduced the wealth of those who directly hold shares and of those with defined contribution pension pots that are invested in equities.

This coming Sunday is Pensions Awareness Day – an initiative to raise awareness of retirement planning.

Automatic enrolment is a key government policy to help employees save privately for their retirement. We find that it substantially increased workplace pension participation among those working for small employers by around 45 percentage points to reach 70% of targeted employees – with most, but not all, brought in at relatively low rates of pension saving.

From tomorrow, a large proportion of private sector employees will pay more into their pensions – and their employers will have to contribute more too. This is the first of two planned steps in the next two years that will increase the minimum contributions that most employees and their employers will, by default, make to a workplace pension. This is all part of the government’s automatic enrolment policy aimed at increasing retirement saving.