24 April 2021
Prevailing industry wisdom has been that while DB pensions are dying, auto-enrolment and the new flat-rate state pension will soon be able to pick up the baton.
While it is possible to tell a relatively optimistic story about pensions in the UK, this masks the fact that the ‘DC cavalry’ will take a long time to arrive. This paper delves into the data to analyse under-saving for retirement in modern times. With barely one quarter of employees, overwhelmingly those in the public sector, now building up DB pension rights urgent action is needed to speed up the accumulation of DC pension pots. If not, millions of private sector workers could reach traditional retirement ages simply unable to afford to stop work or forced to retire in relative poverty or rely on non-pension savings.
Key discussion points include:
- For the first time, the paper shows the trend in the DB pensions built up by private sector workers alone.
- LCP data on the inflow into retirement from closed private sector schemes is analysed to show how rapidly DB income will peak and decline in coming years;
- The state pension projections are updated, taking account of administrative data on the early years of the new state pension, showing how it is gradually reducing the state pension gender gap. The impact of the ‘triple lock’ policy is also considered;
- New modelling from the Pension Policy Institute into future levels of DC saving for men and women over the coming two decades shows a much less rosy picture of the extent to which the rise of DC will come in time to offset DB decline; and
- The implications for public policy around retirement on the back of this analysis.